Shares of Hyundai Merchant Marine Co. plunged 19% in trade today, the most in 3 months, as investors worried that the company’s debt-to-equity exchange plan would dilute their shareholding.
Hyundai Merchant’s stock declined to KRW 15,000 in trade in Seoul, today.Rival firm Hanjin Shipping‘s shares also dropped as much as 9.2%, as investors feared a similar outcome, as the company is in negotiations with lenders about a possible swap, similar to Hyundai’s.
Hyundai Merchant will issue 236m new shares to its creditor banks, bondholders and shipowners in the debt-for-equity swap as part of its restructuring plan.
The plan follows South Korea’s Finance Minister Yoo Il Ho’s call for restructuring in the shipping industry as weak demand and dwindling cash levels hurt the companies.
The nation also prepares to start a KRW 11tn fund aimed at restructuring its ailing shipbuilding industry.
South Korea’s central bank unexpectedly cut the benchmark seven-day repurchase rate to 1.25%, a new record low, to aid indebted companies in their restructuring plans. The South Korean won moved sharply lower.
The decision to cut benchmark rates was projected by only Goldman Sachs of 18 economists surveyed while others saw a reduction in the next couple of months.
South Korea’s sovereign yield dropped to a record low this month after minutes of the May meeting showed a board member called for lower rates while the government and central bank planned to create a KRW 11tn ($9.5bn) fund to facilitate corporate restructuring.
The board’s May minutes showed several members were worried about downside risks from the corporate overhaul such as unemployment and declining investment.
The government’s plans to aid corporate restructuring would support its ailing shipbuilders
who had slashed jobs and were in process of restructuring their debt.
Creditors of South Korean container-freight logistics provider Hyundai Merchant agreed to a debt-to-equity swap involving the company’s debt of KRW 680bn ($570m), according to lead creditor Korea Development Bank.
The agreement is contingent on conditions including Hyundai Merchant Marine joining an alliance involving major shipping firms.
South Korea’s top 3 shipbuilders, Hyundai Heavy Industries, Daewoo Shipbuilding & Marine Engineering and Samsung Heavy Industries, have come up with their second stage of restructuring plans to their creditors, worth some $5bn, collectively.
The plans consist of a combination of company restructuring, selling of assets and reduction of wages.
Shipbuilder Daewoo is looking to divest its defense industry unit, which produces military ships and submarines, in order to free up much needed capital.
Daewoo is also said to be looking to offload certain of its properties, including its office building in Seoul, appraised at an estimated value of $150m.
Daewoo, as well as Samsung, are also looking to sell their floating docks.
But sales could be difficult, with the current global ship-building industry in recession and demand low.
Hyundai has seen some 8,000 employees leave the company through regular and voluntary resignations since 2015, but they are encouraging more to opt for early retirement packages in order to make further cuts to the wage bill.
Daewoo and Samsung are also looking to reduce staff by about a thousand each this year.
Source: Hellenic Shipping News