Ordeal of Shipping Industry
As South Korea’s two biggest shipping companies, which were plagued by rumors about the merger last year, are likely to face a cash crunch again, with the year having just begun, there is an increased sense of tumult.
According to industry sources on January 24, Hyundai Merchant Marine and Hanjin Shipping are struggling to come up with measures to overcome the liquidity crisis. Hyundai Merchant Marine is going all out to secure cash by selling its bulk shipping division first. Once the sale is completed, the company will be able to secure liquidity worth nearly 100 billion won (US$83.4 million).
Hyundai Merchant Marine tried to issue perpetual bonds with its bulk shipping division assets as collateral in the second half of last year. However, the company failed to do so as investors turned back, with its credit rating downgrading due to the failure of the Hyundai Securities sales.
Hyundai Merchant Marine will have to repay debt of 120 billion won (US$100.08 million) and 240 billion won (US$200.17 million), which were raised from the public, at the end of April and July. The company said it has prepared the fund for April first.
Hanjin Shipping will also need to repay debt of 600 billion won (US$500.42 million) this year. Of the debt, the company plans to repay 300 billion won (US$250.21 million) of private placement bonds through the corporate bond fast taking-over system, while it seeks various measures to raise the remaining 300 billion won (US$250.21 million) of public offering bonds.
Hyundai Merchant Marine and Hanjin Shipping announced their high intensity targeted plans in 2013 as the liquidity crisis continues due to the recession in the shipping industry after the global financial crisis in 2008. Since then, the two companies have overachieved the plans by selling their major subsidiaries and assets for two years, making every effort to secure cash.
As of December last year, Hyundai Group secured 3.58 trillion won (US$2.99 billion) of liquidity by selling its subsidiaries, including Hyundai Logistics and the liquefied natural gas (LNG) shipping division, and assets, increasing capital by issuing new stocks and attracting foreign capital, showing a 109 percent of the implementation rate. Hanjin Shipping also secured 2.35 trillion won (US$1.96 billion) of cash through the sale of its non-core businesses and assets and additional plans, fulfilling 119 percent of the plan.
Although Hanjin Shipping has had an operating profit for six quarters in a row until the third quarter last year, its debt ratio still stands at 687 percent. With a 980 percent of the debt ratio, Hyundai Merchant Marine is unlikely to achieve the targeted plan.
Despite the circumstances, the financial authorities say that it is impossible to provide any further financial aid. An official from the financial authorities said, “Since further financial supports to the companies are like filling a bottomless vessel, we cannot do that anymore. It is more important for an individual company to make every effort to implement the targeted plan first.”
However, other countries consider nation’s shipping companies their basic industries and provide full support. Therefore, there has been strong criticism that the Korean government and financial institutions have been sitting on their hands, unlike other countries. Without clear strategies, they have come up with policies, which go back and forth, during the period.