Print Friendly, PDF & Email

Hyundai Merchant Marine´s ongoing losses and

charter renegotiations speak volumes
As Hyundai Merchant Marine (HMM) continues to bleed, it appears to have become a matter of when, and not if[ds_preview], South Korea’s second biggest shipping company will enter receivership. HMM recently posted another annual loss, with a 443.4 bn KRW (377mill. $) deficit for 2015, a result hardly changed from its 65.2 bn KRW shortfall for 2014. The loss impaired more than half of HMM’s capital and resulted in its shareholders’ equity falling 30% year on year to 477.6 bn KRW, implying a very high gearing level given liabilities of 5.6tn KRW, although the company has more than 6tn KRW worth of assets. On the same day, HMM revealed that the worsening dry bulk market and a global economic slowdown has caused it to call off plans to issue permanent convertible bonds in the name of Hyundai Bulk Line, a recently created entity that acts as a holding company for HMM’s container terminals in the US and the company’s dedicated bulk shipping businesses. HMM said it will instead now sell these assets, said to include 14 dry bulk ships, to South Korean private equity firm Hahn & Co for 100mill. $.

HMM is currently in talks with creditor banks to execute debt-for-equity swaps, a move that could see the banks assume control of the company. It also announced that it has appointed Ernst & Young affiliate EY Han Young to oversee the sale of its 36% stake in Hyundai Securities through an open tender and that it was looking to sell its Busan terminal. HANSA understands that Singapore-based terminal operator PSA International is a likely buyer. HMM’s earlier attempt at selling the Hyundai Securities stake to Japanese financial house Orix fell through last year, when South Korean authorities questioned the sincerity of the sale. On the other hand, HMM managed to sell its majority stake in Hyundai Logistics to Orix for 582mill. $. In 2014, HMM also sold its LNG business to compatriot private equity firm IMM for about 1 bn $. In the same week that HMM posted a loss, HANSA obtained a copy of a letter that the company’s CEO Lee Paik Hoon wrote to owners of chartered-in vessels. In the letter, Lee asked its tonnage providers to substantially discount charter rates, saying that the company could not survive otherwise.

Lee wrote, »HMM has been particularly challenged by these developments and by the fact that payment of charterhire at the rates called for by its time charters has not only resulted in significant losses to date but guarantees that HMM will continue to incur substantial losses from the operation of its business. As a consequence of this, and despite the implementation of drastic cost-cutting measures, HMM’s liquidity has continued to deteriorate to the point where it cannot continue to operate much longer without substantial relief from shipowners and financial creditors.« HMM operates more than 140 vessels, of which around 100 are chartered-in.

The troubled company has also sold its entire stake in affiliated tour operator Hyundai Asan to another affiliate, Hyundai Elevator, for about 6mill. $. HMM and its affiliates are part of the Hyundai Group whose chairwoman is Hyun Jeong-eun. On 18 February, Hyun and her mother, Kim Moon Hee, who is a major shareholder of Hyundai Elevator, were issued 6,000 shares worth 5,000 KRW each, translating into total cash injection of 30 bn KRW (24mill.$).

A HMM spokesman told HANSA that as of 31 December 2015, the company has raised 3.58tn KRW, which is 108.6% of its original target. »As part of our additional self-help plans, chairman Hyun Jeong Eun and an affiliated person participated in 30 bn KRW of capital increases to improve our financial status and to secure more liquidity.«
Zeng Xiaolin