Hyundai Merchant Marine Co., a financially troubled shipping giant, said Friday that it has reached an agreement with owners of its chartered ships to cut leasing rates by slightly over 20 percent over the coming three and a half years.
The reduction rate fell short of the goal of 28.4 percent but Hyundai Merchant’s creditors have accepted the agreement, helping the country’s No. 2 shipper avert a court-led restructuring program, company officials said.
Under the deal whose final terms to be unveiled later this month, Hyundai Merchant and its ship owners agreed in principle to slash the charter rates by 21 percent for a 42-month period, which Hyundai Merchant claims will save some 530 billion won in total.
Hyundai Merchant said it will swap half of the amount for its stocks, and the remaining will be paid after 2022 over a five-year period.
A cut in charter rates is one of the key preconditions set by its creditors for a creditor-led restructuring scheme.
Creditors, led by state-run Korea Development Bank, have warned that they will seek receivership for Hyundai Merchant, if the shipper fails to meet three prerequisites — a charter rate cut, debt recast approval from bondholders and an inclusion into a global shipping alliance.
Hyundai Merchant Co.’s employees walk past a company sign at its parent Hyundai Group’s headquarter building in downtown Seoul, on May 30, 2016 (Yonhap)
Last week, bondholders of Hyundai Merchant Marine approved a 804.2 billion-won debt rescheduling proposal, under which more than half of its debt will be swapped for the shipper’s stocks and the remaining debt will be paid back in two years.
The creditors also agreed to swap 680 billion won worth of debt for the shipper’s stocks, as part of an effort to keep the shipper afloat. Hyundai Merchant had debts of about 5.2 trillion won as of the end of March.
The debt-for-equity swap with the shipper’s creditors and bondholders will be completed by August.
Since February, Hyundai Merchant has been in talks with owners of its leased ships to complete the negotiations to cut the rate, as creditors claim that high freight rates would worsen the shipper’s financial health.
Creditors have also demanded that the shipper be included in a global shipping alliance to stay competitive.
Membership in a global alliance is very important for the shipper to take on bigger rivals amid a glut in capacity, which has led to a drop in freight rates.
Major shipping lines around the globe are forming their own new alliances, which will bring seismic changes to the global shipping industry’s landscape.
Earlier, Hyundai Merchant said it currently can’t be part of The Alliance, a new grouping, but stressed that as a member of the G6 Alliance, it would be able to join The Alliance before September after its ongoing restructuring efforts are completed.
Currently, four out of the shipping alliance’s six members have reportedly delivered their intention to support Hyundai Merchant’s inclusion in the new grouping if the Korean shipper succeeds in lowering charter rates and rescheduling debts.