By Mike Wackett
Hyundai Merchant Marine (HMM) has begun a second round of negotiations with shipowners on amending the terms of charter parties to reflect reductions in daily hire rates. The move is crucial to the company’s restructure under its voluntary agreement (VA) status with creditor banks.
It has also received a significant fillip from an agreement to sell Hyundai Securities to a Korean financial house for what is understood to be better-than-expected terms. On 29 March, the cash-strapped South Korean shipping group entered into the VA with its main creditor, the state-owned Korea Development Bank (KDB), and other creditor banks. It allows the company to roll over maturing debt and interest for three months.
During this period, the creditor banks intend to establish a debt restructuring plan for HMM, after due diligence conducted by an external accounting firm.
After originally rejecting the VA proposal championed by KDB, it is understood that the other creditor banks were encouraged by what HMM described as “significant progress” in its charter rate renegotiations with shipowners. HMM said in a statement on 30 March that the negotiations were expected to “speed up” following the signing of the VA, and added it was “expecting that shipowners will agree charter reductions”.
HMM has 33 ships on hire, the majority from Danaos Corporation and Zodiac Maritime Agencies. The former supplies the carrier’s five flagship 13,100 TEU ships, which it deploys between Asia and North Europe within the G6 alliance, on a fixed-rate time charter expiring in 2024. According to one shipbroking source, Danaos has rejected demands to reduce the daily hire rate, but has said it is willing to discuss a compensation figure for early termination of the contract. The Greek shipowner has built its business model on long-term agreements and currently has 29 panamax and 26 post-panamax vessels chartered out, with an average remaining length of hire of 7.2 years. This equates to $3.2bn of revenue, with HMM its largest customer bringing in 28 per cent of this, followed by CMA CGM at 26 per cent and Hanjin at 17 per cent.
Meanwhile, London-based Zodiac has received the second in a series six 10,055 TEU ships built by Daewoo in Korea, which have been chartered by HMM on a 12-year fixed-rate operating lease. The first, Hyundai Mars, was immediately deployed by HMM on its Asia-US west coast service, but its sister, Hyundai Jupiter, although delivered last week has yet to have its deployment assigned, suggesting Zodiac is unlikely to turn the ship over to HMM without a guarantee that the charter terms will be honoured in full. In the interim, HMM has eased some of its short-term liquidity issues by a raft of asset sales, including its dedicated dry bulk business, its stake in Hyundai Pusan New-port Terminal and its share in Hyundai Securities.
The Hyundai Securities sale to Korea’s KB Financial Group was estimated to have brought in around $860m, around three times its equity value, which a spokesman said would give the line “some breathing room” in the second half of the year.
After losing $500 million in 2015 and industry conditions in the first quarter 2016 amongst the weakest for many years, HMM’s cashflow will be under severe pressure, which could cause it to default on charter hire payments that are generally made every two weeks.
Reprinted courtesy of The Loadstar (www.theloadstar.co.uk)