Hyundai Merchant Marine strives to cut charter fees to stay afloat

Hyundai Merchant Marine, the nation’s second-largest shipping company, said Thursday it is striving to lower freight rates on chartered fleets in a desperate move to stay afloat.

Hurt by the slowing global trade, particularly from falling demand in China, the debt-ridden operator has been negotiating with overseas ship owners to cut rates since February, the outcome of which could affect the ailing firm’s fate. Creditors, including Korea Development Bank, are keenly watching the negotiations to decide whether to roll over debts and extend fresh loans, industry officials said.

“Since February, we’ve been negotiating with ship owners, one by one, to cut charter rates. However, we cannot reveal how many ship owners we are in negotiation with and the magnitude of cuts we want, because it would affect our bargaining power,” an HMM spokesperson said.

“The negotiations will be completed by the end of April,” he said.

HMM CEO Lee Paik-hoon in February sent a letter to ship owners to plead a charter rate cut, saying the cash-strapped company could not operate any longer otherwise.

HMM’s charter rates were set relatively high when the global shipping industry enjoyed a boom, sources said.

HMM got one step closer to default on March 17 when nonsecured creditors such as Nonghyup and Credit Union refused to extend the maturity of 120 billion won ($103 million) debts that are due on April 7. Another 240 billion won in publicly placed bonds are due on July 7.

Moon Chul-sang, chairman of the National Credit Union Federation of Korea, openly opposed the idea of extending debt maturity and debt-equity swap for HMM at a press meeting on Wednesday.

If nonsecured creditors keep refusing to budge, the debts will go into default, leading HMM to be under court receivership.

However, HMM’s charter rate cut could positively affect nonsecured creditors’ decisions, observers said.

Despite parent company Hyundai Group’s all-out efforts to rescue the reeling shipping operator for the past three years, HMM suffered an operating loss of 253.5 billion won in 2015 due to excessive supply of ships and low demand for container ships.

The total debt of HMM is estimated to have reached 4.8 trillion won and 1.8 trillion won was borrowed from creditor banks.

KDB has reiterated that chopping off charter hire rates will be the only way to assure creditors that the shipper can survive.

“HMM’s current rates on chartered ships incur losses. So, we said to the company that rates should go up to a level where the company can turn losses to profits,” said a KDB spokesman.

“If HMM completes rate cut negotiations, we will come up with debt restructuring measures to help the company continue running with incoming profits,” he said.

On Tuesday in a regulatory filing, HMM sought the approval of its creditors for self-rescue measures to tide over its liquidity crunch by March 29.

To secure much needed cash, HMM is in the process of selling its brokerage arm Hyundai Securities which could raise about 700 billion won to 1 trillion won, according to news reports.

It has also put up for sale its container terminal Hyundai Pusan New-Port Terminal in the southern coastal city of Busan.

Earlier, HMM sold its bulk cargo unit Bulk Liner Division to H-Line Shipping to raise 120 billion won.

By Kim Yoon-mi (yoonmi@heraldcorp.com)