State Funding Boosts Hyundai Merchant Marine

A state-backed ship financing firm will buy stocks and debts to be sold by South Korea’s Hyundai Merchant Marine, reports Yonhap news agency.

Korea Shipping has been established with an initial capital of one trillion won ($878 million) to help local shipping and shipbuilding companies struggling with mounting losses. Most of the capital will come from the Korea Development Bank and the Export-Import Bank of Korea, the remainder from Korea Asset Management Corp.

“Korea Shipping will provide some 720 billion won to Hyundai Merchant this month or next month to shore up its capital base,” Sohn Byung-doo, a standing member of the Financial Services Commission, the country's financial regulator.

Sohn also said the state-backed firm will buy some 10 container ships operated by Hyundai Merchant Marine, and lease them back to company.

Separately, Hyundai Merchant Marine will place orders for five container vessels and two or three oil tankers later this year with the state-backed financing program, reports Yonhap.

Staying Afloat

Hyundai Merchant Marine has succeeded in restructuring its debt obligations and renegotiating charter terms, and with the support of the Korea Development Bank, it has stayed afloat, unlike South Korea’s Hanjin Shipping.

On February 9, Hyundai Merchant Marine announced that Korea Investor Service (a Moody’s Affiliate) had upgraded its credit rating from D (Default) to BB (Stable).

Hyundai Merchant Marine has successfully overcome all its challenges through debt for equity swap and changing conditions (adjustment of charter fee / debt adjustment with bondholders etc), the company said in a statement. Favorable conditions for the company include reduced financial burden, benefits from Korean government support, the possibility of support from its largest shareholder and merits as South Korea’s main national flag carrier.

Market Recovery

Last week, Hyundai Merchant Marine CEO Yoo Chang-keun said that the firm expects to post losses through the first half of next year due to poor market conditions. 

“This year will be the year to strengthen our financials,” Yoo told Bloomberg. “We are targeting to make an operating profit in the third quarter of next year. By early next year, we expect much of the overcapacity in the market will be resolved . . . We are cautiously expecting rates this year to recover.”

To offset the underperformance of its core shipping business, Yoo says that Hyundai Merchant Marine is also making investments in overseas port operations, like TTI / MSC's facilities in Long Beach and a container terminal in Algeciras, Spain. (Both terminals are former Hanjin assets.)

In December, Hyundai Merchant Marine reached an slot exchange and purchase agreement with the 2M alliance members, Maersk Line and MSC.