HMM, Hanjin Shipping finances seen under 'severe stress'

Drewry Maritime Equity Research said the two companies had been failing to generate enough cash to fund their operations and had instead relied heavily on short-term debt capital from local markets.

“Korean container shipping companies have their backs against the wall with mounting debt and piling losses. Both HMM and Hanjin have severely strained their balance sheets in the current industry downturn and the near term outlook doesn’t seem benign,” said Rahul Kapoor, senior analyst at Drewry Maritime Equity Research.

HMM was seen as having an unsustainable level of debt and capital raising as being imminent. “The company’s financial health remains under tremendous strain with any further stress will likely put HMM’s ability to meet its maturing debts under stress,” Drewry said.

Hanjin Shipping, which continues to be loss making is now sitting on a debt equity ratio in excess of six times. “Further, our estimates suggest Hanjin needs KRW4trn ($3.5bn) to fund its capex and debt maturities and with continued losses the company could find financing highly expensive in a challenging environment. We remain negative on the company’s prospects,” Drewry said.

They are not the only Korean shipowners to have struggled in the industry downturn with both Korea Line Corp and STX Pan Ocean seeking bankruptcy protection in recent years.