The recent, surprising financial struggles of Hyundai Merchant Marine (HMM) have been well-documented over the past few months and have put industry competitors, experts, and consumers on high alert. If HMM continues to operate at a loss, there will be major shifts in the freight forwarding landscape along the trans-Pacific network – many vendors have already began stating their reluctance on using HMM as a carrier.
Through the support of the banks and its bondholders, HMM has begun the normalization of its business. As of today, South Korea’s carrier has already completed three of its five meetings with bondholders to renegotiate credit terms, and HMM indicated that the meetings have been very successful.
According to reports, the bond values in the past meetings were at 240 billion South Korean won ($201.96 million), 60 billion won, and 330 billion won. For its next two bondholders meetings, the bonds up for negotiation are valued at 120 and 54.2 billion won. HMM’s debt adjustment plan offers debt-for-equity swaps for over 50% of the bonds and claims the remainder to be paid off within five years (three annual installments after a two-year grace period).
HMM has also been working with its tonnage providers, stating that they are close to reaching an agreement that will cut charter costs by 30 percent. The success of this agreement goes hand-in-hand with the bondholder meetings, as it is a major factor in the refinancing and normalization of HMM’s business. Korea Development Bank (HMM’s largest creditor) and others are invested in the success of this agreement, hoping to swap 680 billion won in debt for equity.
In this past first quarter alone, HMM had a loss of 276.68 billion won and had a working capital deficit of approximately 2.46 trillion won. Despite selling its stakes in multiple divisions (Hyundai Logistics, Hyundai Securities, etc.), the company continues to carry a long-term debt of 1.75 trillion won and a shareholders’ equity of 44.78 billion won, leading to an exceptional gearing ratio of 39:1. Unfortunately, HMM’s capacity to stay afloat will be determined by how quickly the company can shed the weight of its debts.