2015 completely knocked the wind out of Korea's largest shipping group, Hyundai Merchant Marine (HMM), which suffered a deficit last year of KRW 627 billion, or USD 524.9 million. In 2014 the group delivered a profit of KRW 21.8 billion, according to several news media sources.
Revenue declined by 12.3 percent year-on-year due to the major drops in rates for both container and dry bulk vessels. All the while, the group's management is trying to find a way out of the crisis, with a sale of the carrier's tanker fleet having been debated recently. Chairman Hyun Jeong-eun, who also chairs the board for the Hyundai group, recently stepped down, providing space for the remaining board members to take a more aggressive approach in pushing the restructuring forward, as one spokesperson from the company explained.
Meanwhile, a decision has been made to reduce the company's share capital significantly, down to KRW 170.3 billion (USD 143 million) from today's KRW 1.2 trillion. The decision will to be approved this week. It became very clear how big the problems were for HMM when the executive management team, headed by CEO Paik Hoon Lee, sent out a letter to all business partners in which the company threatened with a collapse if ship contracts were not renegotiated to a very different price than originally fixed.
"Again, the market is facing a very tough situation. In this aspect, where all shipping companies are enduring difficulties, HMM is speaking with shipowners (charterers), with whom HMM signed contracts when the market was booming for paying higher charter fees by over 150 percent compared to the current market price, to adjust the charter payment to the level of the current market. Also, there are rumors that many bulk carriers are renegotiating charter costs with shipowners. HMM is not asking its business partners, who have been developing (continuing) long-term relationships with HMM, to take responsibility, but to jointly reach a win-win situation from a long-range perspective through the charter renegotiations," Hyundai Merchant Marine wrote to ShippingWatch recently in an e-mail.
Hanjin sells London office
Meanwhile, the other major Korean shpping group Hanjin Shipping will close several terminals and its London office as part of a self-made rescue plan which aims to significantly reign in the company's debt ratio in order to qualify for a state rescue package. The carrier, which is currently struggling under a towering debt of 600 percent of its total assets, will sell off its London office, its container terminal in Kwangyang, Korea and various regostered trademarks under Hanjiin Shipping, according to Korea Economic Daily.
If the carrier succeeds in reducing its debt ratio to under 400 percent, Hanjiin Shipping will meet the required conditions to access help from the government ship fund. The package, worth USD 1 billion, was announced by the The Financial Services Commission and the Ministry of Oceans and Fisheries late last year.
Hanjiin Shipping will need to raise its capital by around USD 670 million to meet the necessary requirements. The debt-stricken company first began efforts to reduce its debt-ratio at the beginning of the year when it issued a hybrid bond worth USD 184 million, which was acquired by Korean Airlines in a transaction that reduced the carrier's debt ratio to 600 percent. To lower it by a further 200 percent, the company will negotiate with creditors to reduce debt in addition to the reported divestments.