Korean Gov’t to Provide Up to 10 Trillion Won to Hyundai Merchant Marine

The South Korean government and creditors have practically launched its phased program to provide up to 10 trillion won (US$8.84 billion) of money to strengthen the competitiveness of Hyundai Merchant Marine (HMM), the only remaining long-distance shipping firm in the country.

A senior official from creditors said on October 17, “It is inevitable to provide additional financial support to HMM as the nation’s only shipping firm in order to secure the competitiveness of the domestic shipping industry. Starting with the issuance of new shares worth 700 billion won (US$618.87 million) within this year, we have decided to inject more money by year and stage.”

During a parliamentary audit of the National Policy Committee on October 16, Financial Services Commission Chairman Choi Jong-ku also said, “Since HMM has difficulties in boosting its competitiveness, the company needs an additional financial support.” The head of the country’s financial regulators made an official announcement to inject more money to make HMM more competitive.

Previously, global consulting firm AT Kearney released a report that HMM, which ranks among top 15 in the global market, needs up to 10 trillion won (US$8.84 billion) of investment by 2020 in its bid to secure the medium and long-term competitiveness. It expected that the company would need 5.6 trillion won (US$4.95 billion) to build 40 ultra large ships, 3.3 trillion won (US$2.92 billion) to purchase 1.5 million containers and 1.1 trillion won (US$972.33 million) to acquire terminals at home and abroad and remove chartered ships that cost a lot in the next five years.

HMM President Yoo Chang-keun also set up the plan based on the result to grow into the world’s eighth largest shipping company by expanding its shipping tonnage to one million TEUs within five years, asking for government and creditor support.

HMM initially planned to attract 700 billion won (US$618.81 million) of investment needed by the end of this year from foreign capitalists. However, the company failed to reach an agreement with BlackRock, the world’s largest asset management firm, to attract up to 1 trillion won (US$884.02 million) of investment. In the end, creditors, including the Korea Development Bank, the largest shareholder with a 13.13 percent stake, decided to increase capital by issuing new stocks.

A key official from creditors said, “The negotiation with BlackRock have broken down as the asset management company insisted on excessive collateral requirements in return for quota investment. We have changed the plan to increase capital participated in by shareholders, including creditors, as an alternative to attract foreign investment.” Creditors also ended the talks with BlackRock considering the fact that the equity investment from BlackRock will lower the stake of creditors, the company’s largest shareholder, and it can become an obstacle to normalize the company.

Out of the 700 billion won (US$618.81 million) of paid-in capital increase, HMM plans to spend 400 billion won (US$353.36 million) on buying new ships and terminals and the remaining 300 billion won (US$265.02 million) on operation such as charter costs and fuel costs.

Starting with the paid-in capital increase, the company will be offered an additional financial support in earnest to strengthen its competitiveness. HMM will receive a maximum investment of 10 trillion won (US$8.84 billion) stage by stage in the next five years.