Creditors delay 1.2 trillion won repayment to rebuild HMM

Creditors of Hyundai Merchant Marine (HMM) agreed Tuesday to postpone repayment of 1.2 trillion won ($1 billion) of debt in a bid to put the cash-strapped shipper back on track.

All seven creditors of the shipper, including the state-run Korea Development Bank (KDB) and Export-Import Bank of Korea, agreed to adopt a debt workout program submitted on March 22 by the shipping arm of Hyundai Group, at a meeting held at the headquarters of KDB in Yeouido.

The creditors will not demand repayment of about 1.2 trillion won of principal and interest for the next three months, while they are planning to establish measures to adjust the debt structure of the shipper, including a debt-for-equity swap plan. The debt was due early next month.

The agreement is contingent on consent from all stakeholders, including overseas shipowners and bondholders, to the decision.

“If any of them object to it, the rescue plan will be halted,” said a statement released by KDB after the meeting. “Both negotiations with overseas shipowners to cut vessel lease rates and with bondholders to roll over maturities should follow.”

The key question is whether the shipper will win an agreement from shipowners to cut fleet rates. If it fails to do so, the agreement will fall apart. The company has been in talks with owners of its chartered vessels to bring down the rates since February, but there has not been much progress, according to insiders.

The creditors’ voluntary agreement to salvage the struggling company is a sort of corporate restructuring method prior to a workout program.

Applying for court receivership is the highest level. Under such an agreement, creditors can decide whether or not to take action to rescue indebted companies, including extending loan maturities or providing additional funds in exchange for debt-reducing efforts. It also could include layoffs or the sale of assets. But it has no legal binding unlike the workout program.

“The company will make painstaking efforts to carry out the self-correcting plan to restore financial soundness and normalize management,” the shipper said in a statement.

Due to a prolonged slump in the global shipping market, with falling freight rates and shrinking global trade, HMM is in the red with a pile of debt amounting to 4.8 trillion won, according to estimates by industry insiders. In 2015 alone, the shipper posted 626.9 billion won in annual net loss.

Earlier this month, HMM came up with a self-help plan, including a capital reduction and the sale of Hyundai Securities, the sixth-largest securities firm that is expected to be worth 700 billion won to 800 billion won.

The preferred bidder and the price of the securities arm of Hyundai Group will be announced today, a day later than initially planned. It is expected to spur the delayed restructuring process of Hyundai Group.

HMM, which owns a 22.43 percent stake in the securities firm, plans to use the money from the sale to help repay its debt.

The creditors also decided to select an accounting firm to oversee due diligence on the shipper and establish a normalization plan in the near term.

BY SONG SU-HYUN [song.suhyun@joongang.co.kr]