Bondholders in South Korea’s troubled Hyundai Merchant Marine Co. and Hanjin Shipping Co. are in danger of becoming burned, losing as much as 3 trillion won ($2.6 billion) should the bonds become non-redeemable if the two head to court receivership upon failing to lower charter fees or reschedule their debt portfolio. The repercussions on the local bond market could be huge and bring about liquidity crisis for Korean companies.

According to the Financial Supervisory Service on Sunday, outstanding debt issues at home and abroad amount to 1.2 trillion won for Hanjin Shipping and 1.7 trillion won for Hyundai Merchant Marine. Of the total, 1.2 trillion won are publicly traded and held by individual investors and 1.5 trillion won owed to the state-run Korea Development Bank in bailout arrangement. Separately, Hyundai Merchant Marine raised 20 billion won in 2012 and Hanjin Shipping 220 billion won in February this year in perpetual bonds, issues without maturity that pay investors coupons perpetually.

Bond prices have dipped since Hanjin Shipping announced on Friday that it applied for workout arrangement with creditors. The “Hanjin Shipping 78” bond whose maturity arrives in May next year plunged 21.03 percent to end at 5,812 won. The value of “Hanjin Shipping 76-2” bond that matures in June next year slipped to 5,051 won, just half of its face value of 10,000 won. Hyundai Merchant Marine and Hanjin Shipping won’t likely be able to repay the principal on their respective 360 billion and 221 billion issues that mature this year.

Hyundai Merchant Marine will hold a congress in June for all bondholders in its issues that mature this and next year to discuss debt-to-equity swap and other emergency actions. Over 50 percent of Hyundai Merchant Marine’s publicly trading corporate bonds are held by non-banking institutions like the National Agricultural Cooperative Federation’s unions and National Credit Union Federation of Korea, and the rest by retail investors. But if the carrier fails to cut down charter rates in negotiations with ship-owners next month, it would lose chance to persuade its debt-holders and likely end up in court receivership.

Hanjin Shipping is also taking similar steps. It hopes to persuade creditors before 190 billion won issue matures on June 27.

Industry watchers estimate bondholders may not be able to redeem even 10 percent of their principal if the two shippers already with little assets left fall under court protection.

By Kim Hye-soon

[ⓒ Pulse by Maeil Business News Korea & mk.co.kr, All rights reserved]