South Korean shipping conglomerate Hyundai Merchant Marine’s attempt to renegotiate charters could affect owners such as Greece’s Danaos.
Hyundai Merchant Marine (HMM) said a deal with creditors includes a three-month maturity extension of principal and interest of debts that will give the company time to implement elements of a “self help” plan, including renegotiation of ship charters.
HMM said Thursday it is “making some progress” in those charter cut negotiations, adding that the plan is based on due diligence conducted by an external accounting firm.
HMM said while an initial plan to reschedule its debt was rejected at a meeting of major creditor banks on March 17, the Korean Development Bank (KDB) has said it will advance the plan at a second meeting March 22 with the company’s major creditor banks in order to support the efforts of HMM to make the company more financially sound.
A voluntary agreement with between HMM and KDB is expected on March 29.
The state-run KDB is the company’s largest creditor. HMM said the agreement “reflects government’s willingness to support HMM. There also was the comment from Kim Young-suk, the Minister of MOF, saying (HMM’s) restructuring plan has been fully drawn up and is approved by the Financial Services Commission and its major creditor bank.”
The company’s debt is approximately 4.8 trillion won or $4.1 billion. HMM has 120 billion won ($103.5 million) of bonds due in April and 240 billion won ($207 million) of bonds due in July.
HMM said it and KDB will “hold a creditors’ meeting again for all HMM’s publicly placed bonds including the bonds due April, which were rejected to extend its maturity, to adjust the debts.”
Meanwhile, Korea’s Yonhap news agency reported shareholders of HMM at their annual meeting on Friday approved a 7-to-1 capital reduction that will prevent the country’s second largest shipping line after Hanjin from being delisted from the local stock market.
Bloomberg news service explained in a March report that HMM shareholders were asked to write down capital by 86 percent, “to 173.2 billion won ($143 million) from 1.2 trillion won as of April 21 to help improve its balance sheet.”
The effect of charter renegotiation is discussed by Danaos in its annual report, filed with the U.S. Securities and Exchange Commission on Friday.
A Greek-based owner of containerships, whose shares are listed on the New York Stock Exchange, Danaos charters 13 of its ships to HMM and derived 28 percent of its revenue from HMM in 2015.
It notes HMM “has initiated discussions with containership charter-owners, such as us, regarding its charter obligations for which it is seeking concessions.” Many of those charters, it noted are “significantly above current market rates.”
Danaos said “reductions in contracted charter rates for our vessels and other concessions, such as we agreed in 2014 with ZIM for six of our vessels and such as Hyundai is currently seeking from containership charter-owners, will have a significant impact on our ability to service our indebtedness.”
“If Hyundai or our other charterers fail to meet their obligations to us or attempt to renegotiate our charter agreements, as part of a court-led restructuring or otherwise, we could sustain significant reductions in revenue and earnings which could have a material adverse effect on our business, financial condition, results of operations and cash flows, as well as our ability to pay dividends, if any, in the future, and comply with the covenants in our credit facilities. In such an event, we could be unable to service our debt and other obligations and could ourselves have to restructure our obligations,” said Danaos.
HMM: New deal with creditors includes three-month debt extension
