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Friday, March 18, 2016
HYUNDAI MERCHANT MARINE'S INCREDIBLY DEBT EQUITY RATIO
And rates keep getting worse. Why invest more funds to prop up?
Freight Investor Services LEADING THE WAY IN FREIGHT AND COMMODITY DERIVATIVES
Time to pull a rabbit out of the hat?
Rates from Asia to North Europe declined by a further $6 this week to equal the all-time low reported in June-2016 of $205 per TEU. This marks the 11th consecutive week of declines and places rates 67% lower than the corresponding period a year earlier.
With anecdotal rates in the market at below $200 TEU, current levels put carriers within negative freight rate territory. By comparison Maersk Line’s Bunker Adjustment Factor for Q1-2016 on the Asia-North Europe trade stands at $380 per TEU and therefore substantially above the current all-in freight rate of $205 TEU.
With the constant declines not solely limited to the Asia-North Europe trade seven out of the 15 routes covered on the SCFI hit new all-time lows this week, including both the key North Europe and USWC trades. In turn this has led to the comprehensive index reaching new lows for four consecutive weeks.
As earnings continue to collapse, talks between HMM and its creditors that took place on March 17th failed to reach an agreement regarding rescheduling of the company’s debt, including a three-month extension to principal and debt interest repayments.
Despite this key item being rejected at the meeting, one of HMM’s main creditors, Korean Development Bank (KDB), said it will advance with the agreement in order to support the management normalisation of HMM.
KDB plans on making this voluntary agreement on March 29th after further consultation with creditors scheduled for March 22nd. Whether the extension will come to fruition will depend on creditors agreeing to the payment extension next week, as well as HMM’s shipowner counterparties accepting cuts in charter payments, which is seen as a crucial element of HMM’s recovery plan.
The most recent setback for HMM has come on top of their latest annual reports indicating that the company’s debt to equity ratio has ballooned from an already shockingly high 980% to 2,007%. During 2015 the Korean line reported a net loss of Won 627bn (USD 527.4m), significantly down from a profit of Won 21.8bn reported a year earlier.
The coming weeks look to be crucial for HMM’s restricting plan, the question is can they pull the rabbit out of the hat?