Hyundai Merchant Falls on Concern of Share Dilution in Debt Swap

  • Company plans to issue new shares in a debt-for-equity swap
  • Hanjin Shipping shares also fall as company undergoes revamp

Hyundai Merchant Marine Co., South Korea’s second-biggest shipping company, fell the most in three months in Seoul trading as investors worried that a planned debt-for-equity swap would dilute their holdings.

Shares of Hyundai Merchant plunged as much as 19 percent, the biggest intraday decline since March 4, to 15,000 won. The stock traded at 16,250 won as of 12:56 p.m. in Seoul. Hanjin Shipping, the country’s biggest container liner, dropped as much as 9.2 percent.

Hyundai Merchant will issue 236 million new shares to its creditor banks, bondholders and shipowners in the debt-for-equity swap as part of a restructuring plan as it seeks to reduce liabilities and prop up its financials, according to a company filing yesterday. The plan follows Finance Minister Yoo Il Ho’s call for restructuring in the shipping industry as weak demand and dwindling cash levels hurt the companies.

“Investors are concerned about their shares being diluted after the debt-for-equity swap,” Um Kyung A, an analyst at Shinyoung Securities Co. in Seoul, said by phone. “Hanjin Shipping investors are also concerned their shares will similarly be diluted as the company is also undergoing a creditor-led restructuring.”

Hanjin and Hyundai Merchant have submitted applications to creditors to restructure their debt. They have also been in talks with bondholders to persuade them to participate in the creditor-led restructuring plan.

In April, the South Korean government said it would also take steps to help companies in the shipping and shipbuilding industries, including minimizing their debt. Hyundai Merchant could complete talks to cut charter rates on vessels it leased from shipowners this week, South Korea’s government said Wednesday.

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