Financially troubled Hyundai Merchant Marine Co. is in its last-ditch effort to trim the leasing rates for its chartered ships, industry sources said Monday, as the country's No. 2 shipper has made some progress in the negotiations.

Since February, Hyundai Merchant, the country's No. 2 shipper, has been in talks with the ship owners of its chartered vessels to slash the leasing rates, one of the key prerequisites demanded by its creditors, led by the state-run Korea Development Bank, to stay afloat.

Higher charter rates, the creditors and the government believe, are worsening the shipper's financial health, and a cut in the leasing rates is one of the key preconditions for the survival of the shipper.

Hyundai Merchant paid a total of 1.9 trillion won ($1.6 billion) to 22 owners of chartered ships last year, which accounted for 32 percent of its annual sales of 5.8 trillion won.

"Hyundai Merchant is still in talks with the ship owners, and making some progress," a KDB official said.

Financial Services Commission Chairman Yim Jong-yong said the shipper and the ship owners are working to narrow differences on details for the rate cut. "It is important that there have been significant progress in the negotiations, and the final results may not come today," the chief financial regulator said.

But the FSC chief said that the rate cut, if any, would be lower than the 30 percent level sought after by the shipper.

If the shipper succeeds in cutting the leasing rates for its chartered ships, it would clear one of the major hurdles to its survival.

The creditors and the government have been pressing the shipper to cut the rates by mid-May, threatening that Hyundai Merchant will be put under court receivership if it fails to produce "meaningful results" from the negotiations.

Last week, its creditors agreed to swap 680 billion won worth of debt for the shipper's stocks, as part an effort to salvage the shipper. Hyundai Merchant had debts of about 5.2 trillion won as of the end of March.

Hyundai Merchant and other local shipping lines have been grappling with a glut of ships and the subsequent falls in freight rates.

But even after a charter rate cut, the shipper is faced with a few more challenges to overcome -- a debt recast and inclusion into a global shipping alliance.

The move came one week after its bondholders rejected a proposal to extend the maturity of 120 billion won worth of debt.

Hyundai Merchant plans to hold another round of bondholder meetings later this week to extend maturing debts worth 800 billion won.

Also, Hyundai Merchant should join a global shipping alliance to survive after its charter rates are cut and its debt is recast.

Global shipping lines are in a rush to form bigger and more powerful alliances to stay afloat. Hyundai Merchant may be excluded from joining a group of shipping lines unless it cuts its charter rates and reschedules its debt.

Hyundai Merchant claims that its inclusion into a global shipping alliance will be guaranteed if it successfully completes talks over the charter rate cuts and its debt recast is approved by its creditors and bondholders. (Yonhap)