Hanjin Shipping Nears Bankruptcy After Creditors End Support

Published on Thursday, 1 September 2016

Creditors of one of the world’s major shipping companies, South Korea’s Hanjin Shipping Co., said they would no longer give it financial support, pushing the company close to bankruptcy.

A Hanjin spokesman said the company’s board of directors will convene Wednesday to decide on its future course, including whether to file for court receivership.

Hanjin, the world’s ninth-largest container shipping company by capacity, would become the biggest company in the industry to go under if it fails to recover.

Shipping companies world-wide have been hit by years of slumping demand, particularly from China, as trade flows have slowed. Some companies have been forced to sell vessels at a discount, while a handful of smaller operators have already gone bankrupt.

Hanjin and its domestic rival, Hyundai Merchant Marine Co., handle the bulk of Korea’s exports and have been unprofitable for several years, amassing debts in a global shipping market awash in excess capacity and plummeting prices.

South Korea’s ocean carriers have also been pressured by growing consolidation in the shipping business, where global operators are adding bigger ships and forming vessel-sharing alliances to reduce operating costs.

Hanjin, a unit of the conglomerate that controls Korean Air Lines Co., has been under a creditor-led debt revamp program since May. The Seoul-based company said last week it would raise a total of 500 billion won ($446 million) through asset sales and financial aid from Korean Air.

But the creditors said Hanjin would need at least one trillion won in short-term liquidity to pay back maturing debt and cover arrears in payment to chartered shipowners as well as funding for operations.

The South Korean government has called for companies that are struggling under mounting debt to be restructured, but it is also concerned about major job losses. In June, South Korea’s financial authorities announced plans to create an 11 trillion won fund to recapitalize state-run banks so they can absorb bad debts from ailing shipping and shipbuilding firms.

But the government also said Hanjin, which employs around 4,800 people, would be placed under receivership if it fails to extend maturing debt and win lower charter rates with foreign shipowners.

Hanjin had debt of 6.6 trillion won ($5.9 billion) and a debt-to-equity ratio of nearly 850% at the end of last year.

State-run Korea Development Bank, Hanjin’s main creditor, and other local lenders on Tuesday rejected Hanjin’s latest funding plans, sending the company’s shares down as much as 29% to record lows before trading was halted.

The creditors said in a statement Hanjin’s self-rescue packages fell short of their demands.

“A creditor-led restructuring will end now. The company will have to find its own way to survive,” said an official at Korea Development Bank.

Financial Services Commission Chairman Yim Jong-yong reiterated Tuesday that the government isn’t considering merging Hanjin and Hyundai, a suggestion made by the vice chairman of Korea Shipowners’ Association.

Wall Street Journal, 30th August 2016