Hyundai seeks to improve finances via charter rate reductions, asset sales

The South Korean ocean shipping conglomerate is also seeking relief from financial creditors by selling off various assets and stock, as well as issuing $24.4 million in new shares being purchased by Hyundai Group Chairman Hyun Jeong-eun.    Hyundai Merchant Marine Co. (HMM) is seeking relief from the companies it charters ships from as well as financial creditors as part of a “self-rescue plan” that also involves asset sales and injections of new capital.
   On Feb. 1, Paik Hoon Lee, the chief executive of HMM, described the shipping industry as being “in crisis” in a letter sent to owners and operators of container and dry-bulk ships.
   He said the company is “asking its financial creditors to grant it significant relief, including the conversion of substantial portions of their claims into equity and will require from its shipowners a commensurate effort during this difficult period. The existing shareholders will, of necessity be substantially diluted and, following the restructuring, the majority of the company’s equity is expected to be held by the company’s creditors.”
   “Unless the time charter payments are significantly reduced as well, the company cannot survive,” Lee told the companies chartering HMM ships. “We expect to obtain commitments from our financial creditors that together with a commensurate effort for a limited period of time from our shipowners will enable HMM to begin a period of recovery.
   “Unless we are successful in obtaining the agreement of all of our stakeholders, HMM will have no choice but to seek court protection under Korean bankruptcy laws, a result that is virtually certain to result in a substantially less favorable outcome for all concerned than a consensual restructuring,” he added.
   HMM recently announced its financial results for 2015. The company had a net loss of 443.4 billion South Korean won ($359 million at today’s exchange rate) in 2015 compared to a profit of 21.7 billion won in 2014. Sales fell to 5.77 trillion won in 2015 compared with 6.52 trillion won in 2014.
   HMM has been engaged in a wide ranging “self-help plan” since last November that involves both asset sales and injection of new capital.
   On Thursday, HMM said it raised about 30 billion won ($24.4 million) to boost liquidity by issuing new shares that are being purchased by Hyun Jeong-eun, the chairman of the parent Hyundai Group, and her mother, Kim Moon-Hee, who is also a major shareholder of Hyundai Elevator. Hyun will purchase 4 million shares of HMM stock at 5,000 won each, while Kim will purchase 2 million shares at the same price.
   HMM said in a statement Hyun “decided to donate her own money to show her responsibility as a major shareholder and a strong will that we are trying to normalized our management status in an early stage.”
   On Jan. 29, HMM announced it received 70 billion won from Hyundai Elevator — 37 billion won in exchange for selling its stake in Hyundai Asan and 33 billion won in the form of a secured loan on its stake in Hyundai Securities.
   (Hyundi Asan manages the Mount Kumgang Tourist Region and is involved in the Kesong Industrial Park, both in North Korea. But tours to Mount Kumgang were suspended in 2008 after a South Korean tourist was shot when North Korea claimed she entered a military area and just this month the industrial park was closed amid rising tensions between North and South Korea after a missile launch by North Korea.)
   Hyundai is also receiving letters of interest from companies looking to acquire Hyundai Securities and other financial subsidiaries such as Hyundai Savings Bank and Hyundai Investment Network through Feb. 29 and is planning a formal settlement during March. An article in Pulse estimated such a sale could realize 600 billion won.
   The company has also settled a formal contract to sell its dedicated bulk carrier business to Korean private equity firm Hahn & Co., which includes 12 bulk carriers.
   The company said “Dedicated business takes an important part in the transportation of iron ore, coal and steel products for domestic customers, POSCO, KEPCO, Hyundai Glovis and for overseas customer, HEBEI STEEL in 15 to 20 year long term contracts,” mainly consecutive voyage contracts where a customer contracts for a particular vessel for a certain period of time to transport cargo between specified points.The deal is expected to close in March, and HMM says it will receive $100 million and Hahn will also take over $350 million in HMM debt.
   According to HMM, at the end of October last year it had a fleet of 12 owned and 41 chartered dry-bulk ships; five owned and 12 chartered tankers; and 23 owned and 34 chartered containerships.
   HMM is also selling a half interest in Pusan New Port, a major container terminal, to PSA International.
   “We envisage a consensual restructuring in which all of our stakeholders will make an equitable contribution to the recovery of the company,” Paik Hoon Lee said in his letter. “It is critical to understand that HMM’s financial difficulties cannot be solved by dealing with its financial liabilities alone.”