South Korea’s troubled shipowner Hyundai Merchant Marine (HMM), which is trying to overcome its financial difficulties through disposing of assets and business units, could look at a merger with compatriot Hanjin Shipping to increase their chances of survival, according to Drewry Maritime Equity Research.

Financially-shaken HMM is last reported to be trying to sell its profitable tanker shipping business, after it sold its LNG carrier business in early 2014 and recently signed a contract to also sell its dry bulk shipping business.

“For all of its efforts HMM remains in trouble. A merger with Hanjin would create a stronger entity and increases their chances of surviving in a very tough market,” Drewry commented.

HMM is struggling with a liquidity crisis with loans of KRW382bn ($334m) maturing in 2016 and KRW606bn in 2017. The company is on course to report five consecutive years of operating losses when it releases its full year 2015 results, Drewry said.

Drewry’s data revealed that the accumulated losses in HMM’s container division alone since 2008 to nine months of 2015 amount to $352m, and the shipowner has said it is trying to focus on the container shipping business.

But as HMM sells off other non-core assets, its container division is growing in importance and container sales now account for approximately three-quarters of its revenue, up from two-thirds in 2008.

And now that HMM is more purely focused on the container shipping market, it has become a good candidate for a merger with container carrier Hanjin Shipping.

“Hanjin (Shipping) is no model of financial well-being itself but it has at least managed to turn profits in the container market in the last two years,” Drewry said. As a group, Hanjin Shippingreturned to the black in 2015 with a profit of $6m, as against the loss of $396m in 2014.

A merger would propel both carriers to become the fourth largest operator in the world – before themerger of China Cosco and China Shipping Group – with combined global volumes of 8m teu from a fleet capacity of just over 1m teu, giving a market share of 5% based on the current fleet, according to Drewry.

Drewry noted that previous merger talks between HMM and Hanjin Shipping were put to rest by the Korean government last year, but the debt situation in both companies is causing serious concern in local circles and could well bring them back to the table.

“Consolidation between liner operators is not a panacea to the industry's woes because it doesn't remove the excess number of ships, but notwithstanding that it does seem that HMM and Hanjin would stand a better chance of surviving together than they do on their own.”