While restructuring of South Korea’s two largest lines gets under-way, a merger might be discussed again.
With South Korea’s two largest shipping lines effectively under the control of their largest creditor, the future looks uncertain for[ds_preview] Hanjin Shipping and Hyundai Merchant Marine. On 22 April, Hanjin announced that its chairman and CEO, Cho Yang-ho, would cede control of the company to its largest creditor, Korea Development Bank. The latter and Hanjin’s other creditor banks on 4 May approved the company’s »application« for voluntary restructuring, which involves renegotiating the rates of its chartered-in fleet. The similarly troubled HMM has signed an agreement with KDB, to stay debt repayments until 29 June, while the bank conducts due diligence to see how to restructure the company’s debt. Meanwhile, HMM has moved closer to receivership, after its talks with five of its 22 tonnage providers failed to secure a 30% reduction in hire rates. The five are Danaos Corporation, Capital Ship Management Corporation, Navios Maritime, Zodiac Maritime Agencies and Eastern Pacific Shipping. South Korea’s Financial Services Commission, which regulates the country’s financial institutions, said prolonging the talk would only hold up the reorganisation of HMM. It was this decided to call off the negotiations.
A spokesman for Hanjin told HANSA that 91 of the company’s 151 operated ships are chartered-in. KDB has also required the company to lower its charter costs in order to be granted autonomous restructuring, although the margin has yet to be decided.
The restructuring of Hanjin and HMM would have repercussions for tonnage providers, such as NYSE-listed container ship lessors Danaos Corporation and Seaspan Corporation. Danaos has 13 container ships chartered to HMM, including five 13,100TEU Post-Panamaxes with charters expiring in February–June 2024 and eight 2,200TEU vessels with charters expiring in May 2017–July 2018. The company also has eight container ships chartered to Hanjin, including three 10,144TEU Post-Panamaxes with charters expiring in March–May 2023 and five 3,400TEU vessels with charters expiring in March 2020 to February 2021. The Post-Panamax vessels are the largest ships with the longest charter coverage in Danaos’ fleet. Danaos said: »If any of these liner operators cease doing business or do not fulfil their obligations under their charters for our vessels, our results of operations and cash flows could be adversely affected.«
Adding to the uncertainty is the exclusion of HMM from the recently minted THE Alliance comprising Hanjin, Mitsui OSK Lines, Nippon Yusen Kaisha, ›K‹ Line, Yang Ming, and Hapag Lloyd. HMM was widely expected to be part of THE Alliance, but its financial issues have delayed its inclusion, a company spokesman told HANSA. The HMM spokesman said that the company hopes to join the THE Alliance by June, when its financial situation should become clearer. He said: »HMM’s entrance into THE Alliance is only being postponed as there have been several media reports since the beginning of this year about the possibility that HMM might be under court receivership. The current members of THE Alliance are going to determine HMM’s participation once the company’s business is normalised.« Not surprisingly, there are whispers that a Hanjin-HMM merger may be on the cards again, having been mooted by the government in October 2015. Hanjin and HMM are, according to Alphaliner, the world’s eighth and 15th largest container ship operators, and a merger would propel them to the No. 5 spot with total fleet capacity of just over 1mill. TEU, a market share of 5% based on the current fleet.
A South Korean shipping insider told HANSA that she believes that a Hanjin-HMM merger is the logical solution. The source, who declined to be identified, said: »If both companies succeed in cutting charter costs sufficiently, then I think they are highly likely to be merged at the end of the day. Merging Hanjin and HMM might give them a better chance, given the changing market dynamics.«
The government has tried to calm the jitters, with Yim Jong-yong, chairman of South Korea’s Financial Services Commission, saying that talk of a merger is premature and inappropriate. Spokesmen for HMM and Hanjin also asserted to HANSA that the companies strive to remain independent.
Another matter of concern is KDB’s burden of bailing out troubled enterprises. This was an issue during recent parliamentary elections where the ruling party lost its majority in the National Assembly. By swapping debt for equity in Hanjin and HMM, KDB would virtually become the largest ship owner in South Korea, in addition to being a major shareholder in the troubled Daewoo Shipbuilding & Marine Engineering and STX Offshore & Shipbuilding. The South Korean shipping insider believes that KDB will ultimately decide on whether to merge the troubled lines, or leave them independent. She noted: »When KDB took over as Pan Ocean’s major shareholder in June 2013, the company’s debts were restructured and the bank sought a buyer. Eventually, Pan Ocean arranged to sell the company to Harim Group in early 2015. Things would happen in a similar way with Hanjin and HMM, in my opinion. The difference would be whether to merge the two companies or not, after cleaning up their financial structure.«
Zeng Xiaolin
