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(News Focus) Hyundai Merchant finds silver lining in dark clouds

All News 16:33 June 01, 2016

By Park Sang-soo

SEOUL, June 1 (Yonhap) -- The odds of financially shaky Hyundai Merchant avoiding court receivership are growing with key preconditions set by its creditors for a creditor-led restructuring being solved gradually, industry sources said Wednesday.

Creditors of Hyundai Merchant, the country's No. 2 shipping line, have warned that they will seek receivership for Hyundai Merchant, if the shipper fails to meet three prerequisites -- a charter rate cut, debt recast approval from bondholders and an inclusion into a global shipping alliance.

So far, things seem to be going well for Hyundai Merchant.

During a two-day gathering, bondholders of Hyundai Merchant Marine approved a 804.2 billion-won (US$672 million) debt rescheduling proposal, paving the way for the shipper to sidestep the worst scenario.

Under the scheme, more than half of its debt will be swapped for the shipper's stocks and the remaining debt will be paid back in two years.

Last week, its creditors, led by the state-run Korea Development Bank, also agreed to swap 680 billion won worth of debt for the shipper's stocks, as part of an effort to keep the shipper afloat. Hyundai Merchant had debts of about 5.2 trillion won as of the end of March.

Hyundai Merchant's last-ditch efforts to slash higher rates for its chartered fleet are also bearing fruit. Since February, Hyundai Merchant has been in talks with owners of its leased ships to complete the negotiations to cut the rate and recently has reported "significant" progress in the negotiations, whose results may come out either this week or next week.

According to the sources, an around 20 percent cut in the freight rates has been viable at the moment, far short of the hoped-for 30 percent rate reduction. But given the tough negotiation process, the figure seems to not be so bad for the shipper, which some say would save around 200 billion won annually.

High freight rates, its creditors claim, are worsening the shipper's financial health, and a cut in the leasing rates is one of the key preconditions for the survival of the shipper.

Creditors have also demanded that the shipper be included in a global shipping alliance to stay competitive.

Joining is very important for the shipper to take on bigger rivals amid a glut in capacity, which has led to a drop in freight rates.

Major shipping lines around the globe are forming their own new alliances, which will bring a seismic change to the global shipping industry's landscape.

Last month, Hyundai Merchant said it currently can't be part of The Alliance, a new grouping, but stressed that as a member of the G6 Alliance, it would be able to join The Alliance before September after its ongoing restructuring efforts are completed.

Currently, four out of the shipping alliance's six members have reportedly delivered their intention to support Hyundai Merchant's inclusion in the new grouping if the Korean shipper succeeds in lowering charter rates and rescheduling debts.


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