Hyundai Merchant Marine has succeeded in further cutting its large debt pile via its second major disposal of the year. Having started 2002 with a gearing level around the 1,400% level, the company is now believed to have cut the figure to about a quarter of the original amount.
The Korean shipping giant earlier sold three Korean ports to Hutchison Whampoa for $215 million.
On Saturday it announced it will sell its car-carrier division to Wilh Wilhelmsen and Wallenius Lines for the sum of $1.3 billion in cash and $200 million in assumed debt.
This combined $1.7 billion worth of disposals has seen HMM's progressive and forward thinking management reduce its debt to a quarter of the size it began 2002 at.
HMM was advised by CSFB on both disposals, and it is hoped that this deal will gain all regulatory approvals and be completed by the middle of October.
The Scandinavian buyers - Wilh Wilhelmsen and Wallenius Lines - will become the world's leader in ocean car-carriers, beating out the former world leaders, the Japanese for the top spot. Its European clients include Volvo and Scania, but with the acquisition of HMM's 76 vessels it will have the opportunity to create synergies and also benefit from the growth of the Korean car industry.
Wilh Wilhelmsen and Wallenius Lines will control 80% of the NewCo that will buy the car-carrier division. The other 20% will be held by Hyundai Motors and Kia Motors, which are also the company's only clients. Indeed, the deal was only made possible when Hyundai Motor and Kia Motor signed a five-year agreement that would allow the NewCo to ships it cars exclusively to export markets around the globe.
Of the 76 vessels, the majority are chartered meaning that this is not in fact a deal valued on assets, but on the cashflows that will accrue over the next five years from the long-term contract with Hyundai and Kia Motor.
Indeed, one way of thinking of this deal is as an outsourcing contract from the Hyundai chaebol to ship its car exports around the world, and which allows the Koreans to realize some cash up front for the privilege.
The NewCo's acquisition of the car-carrying division will be financed through two tranches of debt being raised by HMM's principal creditor, KDB and by Citibank.
After the deal, HMM - which now has no single controlling shareholder - will emerge as a company focused on shipping LNG, containers and oil. It also still retains two terminals in the US and one in Taiwan, for strategic reasons.
At this time, no details of the deal's valuation have been made public, although sources indicate that HMM achieved an attractive multiple based on the growth potential of the asset thanks to the strength of the Korean car industry.
