Korean carriers stuck in container trap
The two largest Korean carriers, Hanjin Shipping and Hyundai Merchant Marine (HMM) are raising their exposure to the container shipping market with recent moves to divest their respective non-liner shipping assets. These efforts however, come at a time of severe competition in the container market. Currently, neither of the two Korean companies has the financial resources to proceed with new orders for large containerships on its own.
Such next-generation vessels would allow HMM and Hanjin to compete more effectively with their peers. Hanjin Shipping said in a Korea Exchange filing on 2 October that, as part of a financial restructuring plan, the company may sell its remaining 22.2% stake in H-Line Shipping, which owns Hanjin’s dry bulk and LNG shipping businesses.
In June 2014, Hanjin had already sold a 77.8% stake in H-L Shipping to private equity firm Hahn & Company for $298 M, thereby relinquishing control of seven LNG carriers, 29 bulk carriers and related shipping contracts. The sale of its remaining stake would end Hanjin’s links to LNG and dry bulk shipping, as the carrier seeks additional cash after failing to sell its container terminal in Algeciras, Spain. Hanjin also considers a sale of its 50% stake in the Busan New Port Terminal.
Meanwhile, HMM announced in a Korea Exchange filing on 6 October that its dedicated dry bulk shipping businesses and HMM America, which owns two HMM-operated container terminals Los Angeles (California United Terminal) and Tacoma (Washington United Terminal), have been amalgamated under Hyundai Bulk Line, a new entity that HMM created on 23 September. HMM and Hyundai Bulk Line will then issue “Hybrid Convertible Bonds”, in an effort to boost the group’s liquidity.
HMM’s latest moves come after failed efforts to complete the planned sale the two US terminals to US private equity firm Lindsay Goldberg, first announced in October 2014.
Since December 2013, HMM has raised KRW 2,763 Bn ($2.4 Bn) from asset sales, including the sale of container equipment, as well as the disposal of Hyundai Logistics to Japanese finance company Orix in July 2014. HMM also divested its LNG shipping business in April 2014.
Despite some improvements in the operating performances of their container shipping units, especially at Hanjin, the two Korean carriers’ will still face significant challenges with operating margins for their container business expected to deteriorate in the second half of 2015.
Since 2009, Hanjin Shipping’s container shipping operations have posted cumulative operating losses of $0.7 Bn, while HMM’s container operations recorded cumulative losses of $0.5 M.