BUCKLING under the weight of crippling debts, a potential merger between South Korea's Hyundai Merchant Marine and Hanjin Shipping would effectively help them keep afloat, a prospect that London-based analysts Drewry believes is now a distinct possibility.
Drewry said previous merger talks between HMM and Hanjin were put to rest by the Korean government last year, but the debt crisis at both companies was a major concern and could draw both sides back to the negotiating table.
"The merger between HMM and Hanjin Shipping is a half-baked rumour," HMM said in a statement released at the end of February. "All interested parties (HMM, Hanjin Shipping, Ministry of Oceans and Fisheries, financial authorities, and the Korean government) have denied a merger between HMM and Hanjin Shipping."
Hanjin has also denied speculation about a tie up, despite having at the end of 2015 a total debt of US$5.4 billion and a debt ratio of 848 per cent, up from 687 per cent in the third quarter, while $1.2 billion of debt comes due this year.
But HMM is on track to report five straight years of operating losses when it releases its full-year 2015 financial results. Drewry said the accumulated losses in its container division alone since 2008 through the first nine months of 2015 amounted to $352 million.
"As the company sells off other non-core assets the container division is growing in importance. Container sales now account for three-quarters of HMM revenue, up from two-thirds in 2008," Drewry noted.
"The increasing reliance on the container sector puts HMM in a tough spot as the near-term outlook for the industry is negative - we expect the industry to lose in the region of $5 billion in 2016 - meaning that the company will have to consider all options, including a merger with Hanjin," Drewry said.
The researchers outlined the new capital that HMM has raised which, combined with its restructuring efforts, totals close to $3 billion. The shipping line is also attempting to cut its financial costs by renegotiating its debt. HMM has also asked vessel charterers to lower their daily rates.
Adding to its woes, HMM has loans of $334 million maturing in 2016 and $530 million in 2017, the analyst said.
A merger would propel both carriers to fourth position among the world's largest shipping lines with a combined fleet capacity of one million TEU and worldwide annual volumes of eight million TEU.
Source : HKSG.