Hyundai Merchant Marine on Friday completed a 247.5 billion Korean won ($216.1 million) permanent convertible bond through a newly created entity called Hyundai Bulk Line, staving off a liquidity crisis and halting further talk of a merger with Hanjin Shipping.
South Korea’s second-biggest shipping company on Wednesday refuted a report in Korea Economic Times, a local business journal, that the government had asked it to merge with its bigger compatriot rival.
While HMM claimed it had received no such request from the government, Hanjin confirmed that it had indeed been asked by the Park Geun-hye administration to review a merger.
Except to say that such a union would be “hard to materialize,” Hanjin Shipping would not elaborate.
Hanjin and HMM have been actively taking steps to boost their cash flow since 2013 after suffering two consecutive annual losses.
After providing 650 billion won in the form of loan and stock purchases, Hanjin affiliate Korean Air became its biggest shareholder with a 33.2 percent stake, resulting in the airline’s boss Cho Yang-ho becoming the shipping line’s CEO in 2014 and leading both companies.
Hanjin in 2014 divested its liquefied natural gas and bulk shipping businesses, selling a 77.8 percent stake to private equity firm Hahn & Company, which placed those units under a new entity, H-Line Shipping. Hanjin Shipping in early October said even its 22.2 percent stake in H-Line Shipping could be sold, reportedly for 150 billion won.
On the other hand, HMM said that having undertaken continuous measures to bolster its liquidity since 2013, it does not expect to have any more cash flow issues. The company also divested its LNG shipping businesses in 2014, selling the business units to private equity firm IMM Investment for 970 billion won.
That same year, Hyundai Group divested a combined 88.8 percent stake in Hyundai Logistics to Japanese finance house Orix for 600 billion won. That stake was held by Hyundai Group chairwoman Hyun Jeong-eun, HMM, Hyundai Global, and Hyundai Securities.
In a series of other moves to raise a total of 3.3 trillion won, HMM’s parent company Hyundai Group sold its stakes in Hyundai Asset Management and Hyundai Saving Bank, in addition to its luxury hotel brand, Banyan Tree, all in 2014.
Things still looked precarious when HMM compiled its last balance sheet in June. That balance sheet showed HMM had assets of 2.27 trillion won and liabilities of 3.33 trillion won, translating into a working capital deficit of 1.06 trillion won.
HMM’s most recent attempt to raise cash by selling its 36 percent stake in Hyundai Securities to Orix for 600 billion won fell through Oct. 20. South Korea’s Financial Services Commission, questioning a change in the composition of investors in Jabez Partners, Hyundai Securities’ second-largest shareholder, withheld approval for the transaction. Orix subsequently called off the sale.
The government asked Hanjin Shipping to review a merger with HMM days later.
HMM, meanwhile, made alternative plans, transferring its dedicated bulk businesses and U.S. container terminals to a newly created subsidiary, Hyundai Bulk Line, and securitizing it with convertible bonds.
An HMM spokesperson said, “The sale of the Hyundai Securities stake was canceled, so divesting the bulk businesses and the terminals is a new option to secure liquidity.”
When asked about rumors that the company would sell its stakes in affiliate Hyundai Elevator and tour operator Hyundai Asan, the spokesman said, “Nothing is confirmed yet. We are considering several options. We are trying to secure more liquidity through various ways such as issuing perpetual bonds.”
Not that Hanjin Shipping is in a better shape, despite backing from Korean Air.
Its current assets as of the end of June totaled 1.36 trillion won, while current liabilities totaled 3.9 trillion won, implying a working capital deficit of 2.54 trillion won.
Besides selling its stake in H-Line Shipping, Hanjin Shipping is also considering selling its remaining 50 percent stake in its Busan terminal operations, reportedly for 150 million won. It sold its first 50 percent stake for $264.6 million in June 2013.
KDB Daewoo Securities analyst Jay Ryu said that falling container freight rates are taking their toll on Hanjin.
“If Hanjin Shipping incurs an operating loss, cash flow will likely turn negative, meaning the company will need to borrow more money,” Ryu said. “With oil prices already so cheap, the company’s only recourse in such an event would be to wait for a pickup in rates, which seems unlikely for now. “
Ryu said overcapacity and lagging consumer demand in developed economies make any sustained rate increases difficult to realize.
Source: JoC.com
Source: JoC.com