Posted - February 11, 2014 - Hellenic Shipping News Worldwide
There is growing concern about Hyundai Group’s move to sell its LNG
business unit, the main business of Hyundai Merchant Marine (HMM).
Industry analysts are saying that the sale of the business unit
estimated at more than 1 trillion won can be helpful for securing
liquidity for the time being. However, the losses, including aggravated
profits, are more likely to far outweigh the potential benefits by
losing its core business that generates stable cash. They believe that
even though preemptive restructuring is important, the group should
maintain the minimum amount of sales capacity not to make itself an
empty shell. In other words, Hyundai ought to control the speed of its
restructuring.
Some in the industry point out that HMM, which experienced liquidity
problems in 2002, might repeat the past, where its auto carrier business
sold to overseas companies as demanded by creditors grew as the golden
goose in the end.
According to sources in the financial and shipping industries on Feb. 9,
Hyundai Group is proceeding with its plan to sell its LNG business
unit, as evidenced in its selection of M&A advisory firms through
its main creditor, Korea Development Bank. Last December, the group
announced its measure to avoid a liquidity crisis valued at 3.3 trillion
won (US$3.1 billion) and its plan to sell some of its LNG business and
bulk carrier units.
However, the industry already raised concerns about the Hyundai’s move.
They worry about the possibility that its sales capacity will be
destroyed with the sale of its core business units, even though the
disposal of assets is unavoidable to save itself from bankruptcy.
A source in the shipping industry said, “One of the principles of
corporate restructuring is to sell off core assets. But if HMM sells its
LNG business unit, it will actually lose a cash-generating business.”
The source added, “The asset disposal can be helpful to solve liquidity
problems. However, it is more likely to be harmful to the company if the
market slowly recovers. With the slow recovery of the market, its
competitiveness will suffer due to a decrease in sales capacity.”
HMM is in a 20-year contract with the Korea Gas Corporation (KOGAS) to
provide the LNG carrier service with seven out of its eleven vessels.
The LNG carrier operator is paid around 5 billion won (US$4.7 million)
in the Middle East and about 2 billion won (US$1.8 million) in South
Asia per LNG shipping, which indicates that the business unit can
generate cash in a stable and steady manner. Therefore, the LNG unit is
considered to be two of the most core businesses among those intended
for asset disposal, along with Hyundai Securities.
The problem is that what will happen after the sale of the core business
unit, when the group no longer has a source of steady profits.
Currently, the main business of the Korean logistics company is its bulk
carrier unit, with a tendency to fluctuate in profits, depending on
shipping market conditions. After selling off its LNG business unit, the
company is likely to more rely on its unpredictable business.
Therefore, experts are saying that the disposal of core assets is
important to prevent liquidation, but the LNG business unit that is
related to the survival of the company ought to be preserved. Another
industry source remarked, “If HMM sells its LNG business, it will only
have the bulk carrier unit, which is vulnerable to market fluctuations.”
The source concluded by saying, “It is important for the firm to
faithfully carry out its plan to save itself from bankruptcy. But the
company also needs to keep the minimum amount of sales capacity for its
survival.”
Source: Business Korea
Post to be fund at:
http://www.hellenicshippingnews.com/News.aspx?ElementId=25ecce9d-5ede-48e2-9c7c-8065f1cce222&utm_source=newsletter&utm_medium=email&utm_campaign=daily
No comments:
Post a Comment