HMM to raise over 2 billion dollars to save company

Hyundai Merchant Marine (HMM), currently undergoing a painstaking restructuring process, announced Tuesday that it will raise nearly 2.5 trillion won ($2.2 billion) with its creditors, shipowners, bondholders and retail investors to help salvage the cash-strapped company.

Of the planned 2.5 trillion won, creditors, shipowners and bondholders will be responsible for financing about 1.24 trillion won, which will be raised by debt-equity swaps.

The remainder will be covered by retail investors.

There is concern about the participation of retail investors, which will account for nearly half of the additional capital increase, because such a case is unprecedented in normal corporate restructuring.

According to HMM’s report to the Financial Supervisory Service, the company will issue new stocks worth 8,890 won per share on Aug. 5.

The share price is about 30 percent lower than the Monday closing price of 13,050 won. After the announcement, the company’s shares edged up to 13,250 won on Tuesday. HMM will receive applications from retail investors next week for equity purchases.

According to the company’s report, HMM hopes to appeal to investors with a pledge to sign a “binding agreement” to join 2M, a global shipping alliance, within July.

Creditors reluctantly suggested a public offering for retail investors in order to win an agreement from bondholders and shipowners for debt-equity swaps. Capital equity by such private equity funds held by bondholders and shipowners are banned from sale for six months, since the Korea Exchange barred HMM from the sale in March.

But capital raised through the public offering can immediately be cashed.

“As the possibility of HMM’s normalization goes up, there will be demand from investors to take part in the capital raising, especially those who forecast the future of the shipping industry positively,” said an official at one of the creditors.

If the capital raising is successful, the shipping unit of Hyundai Group will be free from the group’s control, and its restructuring process will be entirely led by creditors.

At the upcoming shareholders meeting on Friday, HMM’s shareholders will decide on additional capital reduction by large shareholders.

Currently, large shareholders of the shipping firm are Hyundai Elevator with a 17.51 percent stake, Hyundai Global with 1.77 percent and Hyundai Group Chairwoman Hyun Jeong-eun with 1.65 percent. After the capital reduction, Hyun’s stake will be less than 1 percent.

After relisting shares on Aug. 5, the company’s debt-to-capital ratio is estimated to decline from 5,309 percent as of March to around 200 percent.

HMM will then be qualified to apply for a $1.2 billion shipping fund formed by the government, which will offer financial support for chartering large, high-efficiency vessels.

However, market analysts warn investors of the capital raising, citing HMM’s poor performance in the past five years and the high risk of its corporate bonds being rated D.

BY LEE TAE-KYUNG, SONG SU-HYUN [song.suhyun@joongang.co.kr]