Hyundai Marine agrees on charter rate cuts

By Nam Hyun-woo

Hyundai Merchant Marine (HMM) said Friday that it agreed with its global ship owners to cut rental coasts, the key condition set by its creditors for debt rescheduling and its rehabilitation program.

The Korea Development Bank (KDB), the leading creditor of HMM, said Hyundai Merchant and five international container ship owners have agreed on a 20 to 21 percent cut in charter fees. Also, 17 bulk carrier owners have consented in a 25 percent cut in the charter rate.

This will help the shipper save some 530 billion won. The company was set to pay 2.5 trillion won for three and a half years, and 530 billion of the amount will be paid to ship owners through new shares and long-term bonds.

The government, which owns 100 percent stake of KDB, initially set a 28.4 percent cut as the target, but the bank said the 20 percent cut was “acceptable.”

Creditor banks have said that the shipper will be put under court receivership if it fails to reach an agreement to cut its charter costs.

“Creditors believe the charter fee talks have accomplished their initial purpose,” the bank said in a statement.

The company signed rental contracts in the early 2010s with the ship owners, but the protracted slump in the global shipping industry made HMM pay rental costs some 60 percent higher than market price.

The government earlier said a charter fee cut is the utmost precondition for HMM’s debt rescheduling and the company would have fallen under court receivership should it have failed to reduce its costs of leasing ships.

It took some 110 days for the HMM to get a reduction in rental costs. Since February the company has sent its officials to the ship owners for negotiations, but had been unsuccessful as its target rate was leaked while the U.K. based ship owner, Zodiac Maritime, was resistant to the cut in charter fees. The company failed to meet the initial deadline at the end of May.

The last and decisive pitch was made by Hyundai Group Chairwoman Hyun Jeong-eun.

According to HMM officials, Hyun sent an e-mail to Zodiac Maritime Chairman Yeal Ofer privately late last month, writing, “Zodiac has been a friend extending a hand to HMM whenever the company was suffering,” asking the company to “help HMM.”

“We did not know Hyun had sent the e-mail,” said an HMM official. “But the letter appears to have served a critical role in Zodiac changing its stance.”

The only remaining step before HMM can normalize its business is joining an alliance among global shippers. HMM had been a member of the G6 shipping alliance, but wasn’t included in THE Alliance, which was formed by members of the G6 and CKYHE Alliance.

According to the company, it has received agreements from four out of six members of THE Alliance and will likely join the alliance as late as September.

If HMM finishes its self-rescue programs, creditors will make a debt-equity swap worth 684 billion won to lower its debt ratio to some 220 percent by the end of this year. As of March, the company’s debt ratio hovers around 5,300 percent.