Hyundai Merchant Marine, facing a liquidity crisis, is reportedly in negotiations with local private equity firm Hahn & Company for the sale of its bulk cargo shipping business.
The target for sale is the company’s business on shipping fuel sources like iron ore and coal used for power generation.
The deal amount is forecast to reach about 600 billion won ($495 million) as the private equity firm reportedly offered a cash payment of 100 billion won and the takeover of the shipping firm’s 500 billion won debt.
“The company is looking into all options on the table to pay back debts. Sale of assets, including the bulk cargo shipping business, is one of those options,” an HMM company official said.
Market watchers remain positive about the deal-making based on the synergy effect between HMM and Hahn & Company.
It is necessary for the money-losing HMM to raise capital before July, when it has to pay back debts amounting to about 500 billion won.
According to the financial industry, HMM should pay debts amounting to 221 billion won by April and 299 billion won by July. Hit hard by the deteriorating container shipping business amid the prolonged global business downturn, HMM is struggling to pay back loans, with its debt-to-equity ratio hovering around 800 percent.
The firm’s financial liquidity has worsened since it failed to sell its 22.4 percent stake in brokerage affiliate Hyundai Securities to Japanese financial services group Orix Corp. for 647 billion won last November.
“Cash raised from the asset sale could help HMM ease concerns of creditors over a liquidity crunch,” an industry insider said.
The private equity firm is expected to benefit from the deal as it can expand the bulk cargo shipping business of H-Line Shipping that it acquired from Hanjin Shipping in 2014.
Shares of HMM jumped 30 percent to 3,005 won, following news of its asset sale plan.
The shipping giant will submit a revised self-rescue plan to its creditors by the end of this month, including to Korea Development Bank, which has asked the company to cut its debt ratio to 400 percent.
The asset sale plan is crucial for HMM and its parent Hyundai Group as the government could push for a merger between HMM and its bigger rival Hanjin Shipping in its effort to revive the faltering shipping industry, the insider added.