Market rumors are rampant that the government is seeking to force the merger of Korea’s two largest shipping companies as part of its push for corporate restructuring to overcome the deteriorating market conditions.

A local news agency reported Monday that the government will officially discuss a possible merger of the country’s No. 1 shipping line Hanjin Shipping and its rival Hyundai Merchant Marine that suffered a setback due to ongoing liquidity issues.

State bodies involved in the shipping industry’s restructuring plan -- the Financial Services Commission and the Ministry of Oceans and Fisheries -- refuted the report, saying they haven’t advised or forced the shipping tie-up.

“Considering the economy’s heavy dependence on trade and alliance-oriented global shipping industry, the country needs the two separate companies (rather than one merged firm),” said the Ministry of Oceans and Fisheries.

The ministry said the restructuring will be carried out based on each firm’s internal restructuring and the main creditors will review their financial assistance.

Hyundai Merchant Marine also denied the speculation, saying it has not received any such proposal from the government.

This is not the first time that the two shipping lines have been the subject of takeover speculation.

Last month, local media reported that the two companies had turned down the government’s informal proposal for consolidation.

“The government recommended us to examine the possibility of a merger but we said it’s not feasible,” a Hanjin Shipping official said.

The government has raised the need for urgent restructuring in the shipping industry -- along with steel and petrochemical firms -- to stay afloat after being hit hard by low demand in global markets.

“It seems necessary and urgent to restructure the troubled shipbuilders, steelmakers and shipping companies,” Finance Minister Choi Kyung-hwan said during a session of the parliamentary audit on Oct. 6.

The shipping industry has been reeling under heavy losses since the global economic crisis, with a decline in demand resulting in a substantial capacity glut.

Steeper competition from global rivals, especially Chinese firms, that have started to step up merger and acquisition efforts from the late 2000s is another threat the Korean shipping firms confront.

Hanjin Shipping and Hyundai Merchant Marine have posted cumulative losses of 320 billion won ($277 million) and 670 billion won over the past 10 quarters, respectively.

Hanjin logged an operating profit of 82.1 billion won last year following three consecutive yearly losses between 2011 and 2013 while Hyundai’s debt grew to over 6 trillion won after making annual losses for the fourth year in a row since 2011.

Since 2013, the two companies have been taking steps to boost cash flow with their restructuring plans which include sales of subsidiaries and core assets.

Hanjin has divested its LNG and dry bulk businesses, with the latter two divisions consolidated under H-Line Shipping while Hyundai has divested its LNG business. On Oct. 6, the company securitized its dedicated bulker and tanker businesses and overseas container terminals.

By Park Han-na (hnpark@heraldcorp.com)