It has been pointed out that the four largest shipping companies in Korea -- Hyundai Merchant Marine, Hanjin Shipping, SK Shipping and STX Pan Ocean -- need to further diversify their financing sources for an improved financial structure with their corporate bonds worth two trillion won combined scheduled to reach maturity this year. The companies have dealt with liquidity risks by issuing company stocks as well as by means of short-term borrowing. However, the corporate bond market is shrinking these days to increase the need for more aggressive paid-in capital increase, asset disposal, etc.
According to the Korea Securities Depository and Hi Investment & Securities, the four companies’ total corporate bond balance amounts to 6.76 trillion won now and 1,755.4 billion won of it, that is, 26%, comes to maturity within this year. Hanjin Shipping, which has a credit rating of A-, has the largest part of it at 634.1 billion won, followed by Hyundai Merchant Marine (A-, 480 billion won), SK Shipping (A0, 241.9 billion won) and STX Pan Ocean (BBB+, 399.4 billion won).
The thing is that they have few ways to procure funds to repay the debts. Between 2011 and the first half of 2012, they had taken advantage of the abundant market liquidity to make repayments by issuing corporate bonds and corporate bills without a hitch. However, the market began to contract in September last year, when the Woongjin Group filed for court receivership, to boost their financial structure risks.
STX Pan Ocean tried to issue corporate bonds worth 100 billion won this year but 70% of it has been unsold. Hanjin Shipping and Hyundai Merchant Marine entered the market in June and December last year respectively, but have been unsuccessful until now. “The four major shipping companies’ debt ratio reached as high as 609% last year to compound the matter,” said Hi Investment & Securities research analyst Kim Ik-sang.
At the same time, their rapidly deteriorating credit ratings are making the issue of corporate bonds even more difficult. Credit-rating agencies in the private sector, such as Korea Investors Service, have already lowered Hyundai Merchant Marine’s rating from A0 to A- earlier this year and that of STX Pan Ocean from A0 to BBB+. Hanjin Shipping’s rating fell from A0 to A- in 2012, too.
Industry experts are urging the companies to enhance financing capabilities by various ways. Specifically, they are saying that the dependence on corporate bonds and bills should be lowered by making better use of asset disposal and recapitalization. In fact, earlier this year, Hyundai sold its very large crude carrier (VLCC), purchased from Denmark’s Maersk Group in 2004, at a cost of US$21 million and Hanjin Shipping signed an MOU with Diana Shipping in Greece as well to sell one of its 4,000 TEU class Panama container ship at a price of US$22 million.
“To be able to repay the maturing bonds and short-term borrowings, the companies have to strengthen their financing and risk monitoring capabilities in advance while disposing of their vessels and assets,” said the analyst, adding, “In the case of SK Shipping, the absolute amount of outstanding issues is rather small for now but it is in a state of capital impairment at a ratio of 48.3% and therefore it needs to recapitalize itself through paid-in capital increase within a year or two.”