Hyundai Merchant sinking deeper into trouble

Hyundai Merchant Marine (HMM) is sinking deeper into trouble, as despite efforts to normalize operations, the shipper has continued to lose money over the past four years amid the global slowdown and intensifying competition, according to industry analysts, Sunday.

CEO Bae Jae-hoon has been trying to implement a full-scale overhaul across the firm’s shipping lines and business divisions, but the financial situation will likely force him once again to request government support.

According to a regulatory filing, the company logged a 105.7 billion won ($89 million) operating loss in the first quarter, extending its losing streak to 16 consecutive quarters since the second quarter of 2015.

The company said it had narrowed the operating loss in the first quarter this year from 170.1 billion won a year earlier, and that sales grew by 18 percent to 1.32 trillion won during the same period.

HMM attributed the past quarter’s loss to increased fuel costs, stemming from U.S. sanctions on Iran, OPEC members’ agreement to cut oil production and demands for low-sulfur oil amid the International Maritime Organization’s new maritime regulations.

“Also, the first quarter is a slow season for shippers, due to the decline in volume after the Chinese New Year holidays,” an HMM official said. “The trade conflict between the U.S. and China also hampered recovery.”

Last year, HMM’s debt-to-equity ratio stood at 296 percent, which was already an alarming level, and the ratio soared to 625 percent, due to new accounting rules for leased ships.

In 2017, the government’s provided 3 trillion won in aid after the state-run Korea Development Bank (KDB) decided to allow Korea’s No. 1 shipper Hanjin Shipping and salvage No. 2 HMM fall in to bankruptcy.

In 2017, the KDB provided 2 trillion won to HMM and provided further support in 2018 by taking over debts worth 1 trillion won.

KDB Chairman Lee Dong-gull criticized HMM, saying “a moral hazard is palpable in the company,” meaning the company was not doing enough to help itself because it believed the government would help it for the sake of the country’s maritime industry.

Following the warning, HMM appointed Bae as CEO in March.

Bae reportedly told KDB and other creditors that the company might “close loss-making lines.” Sixteen of 47 shipping lines operated by HMM are making losses.

Although HMM denied that it was thinking of closing lines, it said it was considering “other ways to raise the efficiency of such lines.”

Despite those efforts, industry officials say the company will need another government loan given the continued losses and high debt ratio.

“While the business environment surrounding the company is not improving, the company seems to have no effective options to turn itself to profit,” an industry official said. “The company is pinning its hopes on the 12 mega container ships it secured for next year, but the company will continue to pile up losses until then.”
Source: Korea Times