HMM merger talk with Hanjin reignites

The pressure on South Korea’s Hyundai Merchant Marine continues to mount with shipping consultant Drewry downgrading the line this week to ‘high risk’ and supply chain news website The Loadstar reporting shipowners are not acquising to HMM’s urgent letter sent on February 1 to get charter rates lowered.

Key owners with boxships on charter to HMM include Danaos and Zodiac.

Drewry reignited merger talk with compatriot Hanjin Shipping as the best way for HMM to survive, something the pair have repeatedly sough to distance themselves from.

“While merger talks between Hanjin and HMM were put off by the Korean government last year, the debt situation in both companies is causing serious concern in local circles, with an official from the Financial Supervisory Service (FSS) hinting at cutting off financial support. With the government unlikely to lend major support, we believe the merger between the two is possible,” Drewry said in a report yesterday.

Speaking with Splash today, Rahul Kapoor, director of equity research at Drewry, said: “We saw this coming, debt is the undoing of HMM. A failure to effectively address the ballooning debt and considerable weakness in underlying markets is what led HMM to this precarious situation. To come out of this unscathed will be a challenge for HMM, we might see a completely different company at the end of this.”

Commenting on the merger speculation, Lars Jensen from SeaIntel told Splash: “Irrespective of how the current challenges in HMM are resolved, it is merely another indicator of the slow but inexorable consolidstion process in the industry. All major carriers, including HMM, are very good at navigating financial difficulties but over time we will see more carriers disappear as independent entities – just as we are now seeing APL absorbed into CMA CGM and the two Chinese carriers becoming one. Whether HMM is next in line is hard to say as we have often seen carriers stage a comeback from the edge of an abyss, but we will see more carriers disappear in the coming years.”

HMM, which has two bonds to pay back in the coming months and is saddled by more than $5bn in debts, could get some much needed cash from the sale of a brokerage firm. Hyundai Group, HMM’s parent, has set a base price of KRW650bn ($525.8m) for the sale of Hyundai Securities with at least two local firms keen to buy it. HMM has a 22.43% stake in the brokerage.

HMM is also in the process of selling off its bulker division and a terminal in Busan to remain afloat while Hyundai Group’s chairman has vowed to plough KRW30bn of her own money into the shipping line.

Sam Chambers

Starting out with the Informa Group in 2000 in Hong Kong, Sam Chambers became editor of Maritime Asia magazine as well as East Asia Editor for the world’s oldest newspaper, Lloyd’s List. In 2005 he pursued a freelance career and wrote for a variety of titles including taking on the role of Asia Editor at Seatrade magazine and China correspondent for Supply Chain Asia. His work has also appeared in The Economist, The New York Times, The Sunday Times and The International Herald Tribune.
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