Hyundai Merchant Marine Co., one of South Korea’s biggest shipping lines, has signed an agreement to join the world’s largest container-shipping alliance, clearing the last hurdle it faces in its efforts to avoid bankruptcy.
The move to join the 2M alliance comes as the flagship unit of the Hyundai Group is reeling under 5.2 trillion won ($4.54 billion) of debt after being unprofitable for several years. The state-run Korea Development Bank and other lenders have threatened to put it under receivership if it fails to pare its debt, cut charter rates and join a global shipping alliance.
“With today’s announcement, Hyundai has successfully completed all conditions set out by our creditors,” Hyundai Merchant said in a written statement Thursday.
The deal will allow Hyundai to offer a joint shipping service starting next April, upon completing details with the alliance partners and going through approval procedures in each member country, it said.
The 2M alliance controls about one-third of the Asia-Europe trade route, the world’s most lucrative, and includes Maersk Line and Mediterranean Shipping Co. Maersk Line, a unit of A.P. Moller-Maersk A/S of Denmark, is the world’s biggest container line by capacity. Switzerland-based Mediterranean Shipping ranks as No. 2.
Hyundai Merchant was left out of a new global shipping alliance formed recently by six Asian and European container-shipping operators to challenge the dominance of global companies such as Maersk Line and Mediterranean Shipping. Hyundai rival Hanjin Shipping Co., the largest South Korean container-shippping company, is part of the six-member group known as “THE Alliance.”
Last month, Hyundai obtained an agreement from foreign containership owners to slash charter rates over the next 3 1/2 years by about 20%, easing a financial burden for South Korea’s No. 2 container operator.
Hyundai expects its charter-rate cuts to help it save as much as 530 billion won and eventually lower its debt-to-equity ratio to 230% from roughly 700%.
The company has paid close to $1 billion a year in charter fees for 83 vessels leased from independent overseas shipowners. It operates a total of 116 vessels.
“With the completion of its self-rescue schemes, we creditors will implement a debt-equity swap, the extension of maturity on loans and interest rate cuts as promised,” the KDB said in a written statement Thursday.
Hyundai Merchant in effect will become a state-owned company once the KDB emerges as Hyundai Merchant’s largest shareholder with a stake of about 40%, after swapping debt into equity next month.
Source: Wall Street JournalPrevious Next