By Kim Rahn
A credit ratings company has downgraded the ratings for Hanjin Shipping and Hyundai Merchant Marine because of their worsening performance.
Korea Ratings said Friday it lowered the credit ratings of the two shipping companies' corporate bonds from BBB+ to BBB-, as well as their outlooks from stable to negative. BBB- is only one level above BB+, the speculation grade right above the junk bond level.
It said despite their self-rescue plans, the two companies' challenges include massive liquidity pressure, declining earnings from the sluggish shipping industry, weak global competitiveness, and a lack of long-term revenue sources.
Analyst Kim Bong-kyun of Korea Ratings said unlike the Korean firms, some of the leading global shipping firms were able to post surpluses in 2013 by enhancing their competitiveness and cutting costs.
"They increased investment into fleets despite poor profits and liquidity shortages, resulting in financial troubles. At the end of 2013, Hanjin had 3.2 trillion won in short-term loans which would mature within a year, while Hyundai had 3.1 trillion won. Considering their cash flows, it is urgent for them to secure enough liquidity to repay them," he said.
Kim noted that the two firms announced their financial restructuring plans last year, saying the liquidity problems may be addressed depending on the outcome of the plans being implemented by the firms.
"However, the progress of the plans is so far unsatisfactory and requires further monitoring to see whether it will go smoothly, as investors have avoided investment in the shipping industry," he said.
The analyst said the two companies' recent decision to sell their core assets, including Hyundai's selling its LNG transportation business, will help them address their short-term liquidity problems.
"But in the long term, such sales may have negative influence on their competitiveness. So we need to keep watching what influence their self-rescue measures will have on their business fundamentals."
For Hyundai Logistics, another affiliate of Hyundai Group, Korea Ratings lowered its rating from BBB+ to BBB-, and the outlook, from stable to negative.
"The firm is offering financial support to other affiliates in the complicated cross-shareholding. The rating decline of Hyundai Marine, the group's flagship unit, also affected the logistics unit's credit," Kim said.
A credit ratings company has downgraded the ratings for Hanjin Shipping and Hyundai Merchant Marine because of their worsening performance.
Korea Ratings said Friday it lowered the credit ratings of the two shipping companies' corporate bonds from BBB+ to BBB-, as well as their outlooks from stable to negative. BBB- is only one level above BB+, the speculation grade right above the junk bond level.
It said despite their self-rescue plans, the two companies' challenges include massive liquidity pressure, declining earnings from the sluggish shipping industry, weak global competitiveness, and a lack of long-term revenue sources.
Analyst Kim Bong-kyun of Korea Ratings said unlike the Korean firms, some of the leading global shipping firms were able to post surpluses in 2013 by enhancing their competitiveness and cutting costs.
"They increased investment into fleets despite poor profits and liquidity shortages, resulting in financial troubles. At the end of 2013, Hanjin had 3.2 trillion won in short-term loans which would mature within a year, while Hyundai had 3.1 trillion won. Considering their cash flows, it is urgent for them to secure enough liquidity to repay them," he said.
Kim noted that the two firms announced their financial restructuring plans last year, saying the liquidity problems may be addressed depending on the outcome of the plans being implemented by the firms.
"However, the progress of the plans is so far unsatisfactory and requires further monitoring to see whether it will go smoothly, as investors have avoided investment in the shipping industry," he said.
The analyst said the two companies' recent decision to sell their core assets, including Hyundai's selling its LNG transportation business, will help them address their short-term liquidity problems.
"But in the long term, such sales may have negative influence on their competitiveness. So we need to keep watching what influence their self-rescue measures will have on their business fundamentals."
For Hyundai Logistics, another affiliate of Hyundai Group, Korea Ratings lowered its rating from BBB+ to BBB-, and the outlook, from stable to negative.
"The firm is offering financial support to other affiliates in the complicated cross-shareholding. The rating decline of Hyundai Marine, the group's flagship unit, also affected the logistics unit's credit," Kim said.
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