A spokesperson for Hyundai Merchant Marine, however, dismissed reports of a combination between the two South Korean shipping conglomerates as nothing more than a “half baked rumor” just one week ago.
A research paper published by Drewry Maritime Equity Research last month concluded that Hyundai Merchant Marine (HMM) “will likely survive” the company’s highly publicized financial hardships, “but that a merger with compatriot Hanjin Shipping is a very real possibility.”
The paper is the subject of an article in this week’s edition of Drewry’s Container Insight Weekly newsletter.
Drewry argues that in the container shipping business, a merger of the two South Korean conglomerates “would propel both carriers from being on the peripheries of the Top 20 to the become the fourth largest operator in the world (before the merger of COSCO and CSCL into China Lines) with combined worldwide volumes of 8 million TEUs from a fleet capacity of just over 1 million TEUs, giving a market share of 5 percent based on the current fleet.”
HMM is a member of the G6 vessel sharing alliance, while Hanjin is a member of the CKYHE Alliance.
If the two companies did merge, they would still lose some ground in terms of market share because other carriers have greater amounts of capacity on order, but Drewry says “a financially stronger company might have a better chance of convincing lenders to fund a new order spree, something that HMM will struggle to do on its own.”
As HMM the company sells off other non-core assets, “the container division is growing in importance; container sales now account for approximately three-quarters of HMM revenue, up from two-thirds in 2008,” said Drewry. “The increasing reliance on the container sector puts HMM in a tough spot as the near-term outlook for the industry is negative – we expect the industry to lose in the region of $5 billion in 2016 – meaning that the company will have to consider all options, including a merger with Hanjin.”
However, online news reports in the Journal of Commerce and Splash24/7 quoted a statement from and HMM spokesmen describing a merger of the two companies as nothing more than a “half-baked rumor.” Splash said it was told “little synergy effect is expected due to their overlapped business fields.”
Drewry says merger talks between HMM and Hanjin “were put to rest by the Korean government last year, but the debt situation in both companies is causing serious concern in local circles and could well bring them back to the table.”
The London-based shipping research and consulting firm said its analysis puts to the Korean conglomerates at the bottom of the Altman “Z-score” financial stress index. The “Z-score” uses statistical analysis of data from a company’s financial statements to predict the probability the company will fail in the next 2 years.
Drewry: HMM-Hanjin merger a ‘very real possibility’
