Hyundai Heavy Industries is expected to face increasing debt repayment burden stemming from its bond issues using its shares in unprofitable shipping company Hyundai Merchant Marine as collateral.

To secure liquidity to revive its sluggish operations, the Korea-listed shipbuilding giant issued bonds worth $220 million exchangeable to HMM equities last year.


However, with HMM going through debt structuring and losing share value on the global shipping downturn, investors in Hyundai Heavy’s exchangeable bonds can demand the shipbuilder to repay their principal investment, according to news reports citing brokerage sources.

They can enforce principal repayment, instead of exchanging their debt to equities well before the maturity date in June 2020.

HMM shares, which hovered around 7,000 won last June, ended at 2,170 won ($1.66) last Friday, below its face value of 5,000 won. Hyundai Heavy is the second biggest shareholder with a 9.9 percent stake in HMM, according to a regulatory filing.

HMM has been facing a liquidity crunch, with its creditors recently agreeing to roll over its debt as part of its restructuring, while Hyundai Heavy saw its credit rating downgrade to “A+” from “AA-,” making it difficult to raise funds in the capital market or borrow money from banks.

Despite negative outlooks for the company’s fund-raising landscape, analysts expect Hyundai Heavy to make a business turnaround this year on financial support for the shipping industry by European banks.

“European banks’ ship financing and Hyundai Heavy’s growth in industrial robotic business will help the company rebound,” John Yu, an analyst at NH Investment & Securities, said in his report.

The company has been winding down its current debt to 23 trillion won, while increasing its noncurrent liabilities from 9 trillion won to 11 trillion won last year, according to its financial statements.

By Park Hyong-ki (hkp@heraldcorp.com)