Creditor banks of Hyundai Merchant Marine were widely likely to approve a 760 billion won ($638 million) debt relief plan Tuesday, but even if they do throw a lifeline to the ailing shipping line, its fate will still remain in the hands of foreign ship owners from whom the firm leases fleet.

The Korea Development Bank and eight other creditor institutions were set to vote on a debt-equity swap proposal, which would turn more than 700 billion won of their loans into the company’s stocks, on condition of a cut in charter fees. 


“The conditional debt-equity swap proposal means that the swap won’t happen if HMM fails to produce meaningful cuts in charter fees,” said an official at the state-run Korea Development Bank, the firm’s main creditor.

The vote comes as HMM, the country’s second largest container shipper, continues negotiations with ship owners to lower leasing fees by 28 percent on average, past the initial deadline of May 20. A deal, if any, must come before the end of this month for the firm to be able to avoid court receivership, observers said. Negotiations with key fleet owners are deadlocked, local reports said.

Charter fees were a major burden on the shipping line’s balance sheet, amounting to more than 30 percent of the company’s sales last year. The firm paid a total of 1.9 trillion won to 22 ship owners. Eighty five of the 124 ships HMM operates are chartered-in.

Even if it manages to strike a deal with the fleet owners, HMM faces a few more challenges in order to stay afloat in the global shipping industry, which is awash with excess capacity and plummeting prices.

On the debt restructuring front, it still has to win bondholders to extend the maturity of debts worth 800 billion won. Bondholders’ meetings are scheduled for May 31 and June 1.

In a previous meeting, bondholders had rejected a proposal to extend 120 billion won worth of maturing debts.

While grappling with financial troubles, the firm was left out of global shipping alliances that were formed recently. The firm sought to allay concerns, saying its inclusion in a global alliance will be guaranteed once its continued existence becomes clearer.

By Lee Sun-young (milaya@heraldcorp.com)