Hyundai Merchant Marine defaults triggering KIS downgrade to 'C'
HYUNDAI Merchant Marine (HMM) has defaulted on the repayment of KRW120 billion (US$105 million) debt, triggering Korean Investors Service (KIS) downgrade to an extremely speculative "C", its eighth rating downgrade since 2013, reports Alphaliner.
The rapid deterioration of HMM's financial situation has put the spotlight on other carriers' balance sheets. Even industry leader AP Moller-Maersk was not spared as its credit outlook was downgraded from stable to negative by Standard & Poor's (S&P).
S&P said the container shipping industry "is up against very difficult industry conditions due to capacity oversupply", as weak freight rate conditionsare expected to strain Maersk's current 'BBB+' investment grade credit rating.
S&P has also lowered CMA CGM's corporate credit rating from 'B+' to 'B' with a negative outlook on April 1. The downgrade reflects S&P's expectation that CMA CGM will "see constrained earnings, owing to the depressed conditions in container shipping" together with the risks posed by CMA CGM's planned acquisition of Singapore-based NOL.
Several carriers are also taking significant impairment losses on the values of their shipping assets. MOL will recognise an extraordinary loss of JPY179.3 billion (US$1.65 billion) in the last quarter of its fiscal year ending March 2016, of which JPY61.9 billion relates to the impairment loss of its container shipping assets.
"K" Line also expects to record a JPY50 billion extraordinary loss from structural re-forms due to fleet disposal, early termination of charter agreements, as well as impairment losses on the value of its dry bulk vessels.
The precarious situation at HMM, with a debt-equity ratio of over 1,400 per cent mirrors that of Zim, which is still recovering from its own debt restructuring programme that was completed in July 2014.
Although Zim's outstanding debt was reduced from $3.4 billion to $2 billion following the structuring, its equity base remains inadequate despite the enforced debt-to-equity swap that was implemented in 2014.
HMM faces a similar fate as it seeks to restructure outstanding debts and charter obligations. The Korean carrier is facing significant resistance from bondholders and charter vessel owners, who are looking at the government-backed Korea Development Bank (KDB) to bear most of the burden of restructuringHMM's debt of some $3.6 billion, of which $2.1 billion are currently classified as short-term debt.
HMM's equity base at the end of 2015 stood at only $240 million. According to the company, the proceeds from the sale of its dedicated dry bulk business (for $100 million), stakes in Busan New Port Terminal (for $70 million) and Hyundai Securities ($1.08 billion) will be used only for supporting the normalisation of the company's business and will not be allocated torepay its debts.
HYUNDAI Merchant Marine (HMM) has defaulted on the repayment of KRW120 billion (US$105 million) debt, triggering Korean Investors Service (KIS) downgrade to an extremely speculative "C", its eighth rating downgrade since 2013, reports Alphaliner.
The rapid deterioration of HMM's financial situation has put the spotlight on other carriers' balance sheets. Even industry leader AP Moller-Maersk was not spared as its credit outlook was downgraded from stable to negative by Standard & Poor's (S&P).
S&P said the container shipping industry "is up against very difficult industry conditions due to capacity oversupply", as weak freight rate conditionsare expected to strain Maersk's current 'BBB+' investment grade credit rating.
S&P has also lowered CMA CGM's corporate credit rating from 'B+' to 'B' with a negative outlook on April 1. The downgrade reflects S&P's expectation that CMA CGM will "see constrained earnings, owing to the depressed conditions in container shipping" together with the risks posed by CMA CGM's planned acquisition of Singapore-based NOL.
Several carriers are also taking significant impairment losses on the values of their shipping assets. MOL will recognise an extraordinary loss of JPY179.3 billion (US$1.65 billion) in the last quarter of its fiscal year ending March 2016, of which JPY61.9 billion relates to the impairment loss of its container shipping assets.
"K" Line also expects to record a JPY50 billion extraordinary loss from structural re-forms due to fleet disposal, early termination of charter agreements, as well as impairment losses on the value of its dry bulk vessels.
The precarious situation at HMM, with a debt-equity ratio of over 1,400 per cent mirrors that of Zim, which is still recovering from its own debt restructuring programme that was completed in July 2014.
Although Zim's outstanding debt was reduced from $3.4 billion to $2 billion following the structuring, its equity base remains inadequate despite the enforced debt-to-equity swap that was implemented in 2014.
HMM faces a similar fate as it seeks to restructure outstanding debts and charter obligations. The Korean carrier is facing significant resistance from bondholders and charter vessel owners, who are looking at the government-backed Korea Development Bank (KDB) to bear most of the burden of restructuringHMM's debt of some $3.6 billion, of which $2.1 billion are currently classified as short-term debt.
HMM's equity base at the end of 2015 stood at only $240 million. According to the company, the proceeds from the sale of its dedicated dry bulk business (for $100 million), stakes in Busan New Port Terminal (for $70 million) and Hyundai Securities ($1.08 billion) will be used only for supporting the normalisation of the company's business and will not be allocated torepay its debts.