Jul 20, 2016

Hyundai Merchant Marine and 2M agree to ally

South Korea-based Hyundai Merchant Marine (HMM) has joined with the 2M alliance, which is formed by Maersk Line and Mediterranean Shipping Company (MSC) under vessel sharing agreement. HMM announced that it will launch a new service next April. HMM has signed an MOU with Maersk and MSC and plans to carry out necessary procedures for relevant authorities in each country going forward. HMM aims to strengthen the service system and reduce costs whereas Maersk and MSC will be able to reinforce services provided in the Pacific area. HMM held an extraordinary shareholders' meeting on July 15 and adopted a reduction of its capital. In addition, its creditors will convert debts into stocks shortly. Thus HMM expects a drastic improvement in its financial standing.

HMM has successfully completed negotiations for a charter freight reduction with shipowners as well as for debt restructuring with creditors and has been working to join the 2M, which was the last task to be completed for corporate restructuring through the joint control by creditors since June. Initially, HMM intended to join "The Alliance", to which three Japanese operators and others belong to, but announced that it started a negotiation for joining the 2M with Maersk and MSC on June 23 and has just signed an MOU with the two companies. After obtaining approvals from relevant authorities and further advancing the consultations with the two companies, HMM will start its services in next April as a member of the 2M.

2M has as large as over 30% of share on the Asia-Europe route whereas their share on the Asia-North America route is relatively small. It is expected that Ocean Alliance and The Alliance, which is slated to be formally established in next April, will have about 40% and 35% of shares on the North America route, respectively while 2M's share on the same route remains at about 15%. Currently, HMM has 4.3% share on the North American route while 13% on the Asia-Middle East route, which is expected to become the largest share on this route, thanks to the recent service reinforcement. As a member of 2M, HMM will be able to use a wide range of service systems while Maersk and MSC will increase their share on the North American route by bringing HMM into 2M.

As a port call service in Japan, Maersk and MSC currently call at Yokohama on the return voyage from the western coast of North America in the TP6 / Pearl River Service, which connects North Europe and West Coast North America with Asia as a base point. They also call at Yokohama on the outward voyage to North America in the TP2/Jaguar Service, which connects the Mediterranean and West Coast North America via Asia. Meanwhile, HMM calls at Yokohama on the return voyage from West Coast North America in the NP2 Service provided as a service of the G6 Alliance to which HMM currently belongs. After joining 2M next year, this service of HMM may be changed.

HMM will achieve major progress in terms of its management reconstruction by joining 2M. The company set its sights on management reconstruction through the joint control by creditors, including the Korea Development Bank (KDB) as its main constituent. To this end, three conditions were presented by the creditors: solving talks for charter freight reduction, debt restructuring, and joining alliance. By joining 2M, HMM met all the conditions. Consequently, the company held an extraordinary shareholders' meeting and adopted a reduction of its capital. In addition, its creditors will convert debts into stocks through the debt equity swap shortly. It is expected that HMM will achieve a drastic improvement in its financial standing and at the same time the company will make a fresh start as virtually a semi-government-owned shipping company under the umbrella of KDB.

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