Hanjin Shipping gets emergency fund from Korean Air
By Choi Kyong-ae
An extended slump may pose a threat to the survival of Korean shipping companies.
In the past five years, the global shipping industry has been going through a downturn that has caused several shipping operators and owners to collapse as capacity glut and lower shipping rates have squeezed margins, and operating capital has dried up.
On Wednesday, Hanjin Shipping, the country's biggest container carrier by sales, said it will borrow 150 billion won ($140 million) in financial support from Korean Air Lines, another major affiliate of Hanjin Group, to stay afloat.
Korean Air's board of directors held a meeting on the same day to help the sister company which is struggling with a severe shortage of operating capital, Hanjin Shipping spokeswoman Sonya Cho said.
The airline company took the 15.4 percent stake in Hanjin Shipping owned by Hanjin Shipping Holdings as security in return for the "emergency loan" extended to the shipping company, Cho said.
Hanjin Shipping will use the money for one year with an interest rate of 5.6 percent, she said. Hanjin Holdings owns a 36.2 percent stake in Hanjin Shipping under the wing of Hanjin Group, the country's 10th-biggest shipping-to-airline conglomerate by assets.
"If necessary, Korean Air will consider an additional loan to help put Hanjin Shipping back on track after consultations with the (group's) main creditor Korea Development Bank (KDB)," the spokeswoman said.
"We believe the financial support from Korean Air will have a positive impact on other various measures we are working on, including loans from its major creditor banks as well as perpetual bonds (with no maturity date), to overcome current liquidity problems," she said.
Hanjin Shipping is not alone in facing a dire situation.
Years of poor performance forced Hyundai Merchant Marine to delay payment of their debts and raise capital by issuing new shares or bonds. Hyundai Merchant asked the KDB to roll over its loans worth 270 billion won and the state-run bank accepted the request last week, giving relief to the cash-strapped company.
The country's second-biggest container carrier is also planning to issue new shares to raise 214.5 billion won next month as it has 420 billion debts maturing next year, Hyundai Merchant spokesman Choi Young-man said.
STX Pan Ocean, the country's biggest bulk carrier, filed for bankruptcy protection with the Seoul Central District Court in June as its parent company STX Group failed to weather the storm in the wake of the 2008 financial crisis.
The container-shipping business, often regarded as a barometer of the global economy, has had a difficult ride in recent years. Many ships ordered during the industry's boom years were put into service just as the economic slump slashed freight demand.
Analysts said Hanjin Shipping likely made an operating loss for the third quarter ended Sept. 30, as weak demand and overcapacity kept the lid on shipping rates. Domestic shipping firms are set to report third-quarter earnings next month.
In the second quarter, Hanjin swung to an operating loss of 55.7 billion won from an operating profit of 79.5 billion won a year earlier. Its net losses widened to 80.4 billion won from 1.27 billion won during the cited period.
In recent weeks, there was an increase in cargo shipments between Asia and North America during the back-to-school and year-end holiday peak seasons. But analysts say the shipment rush was not strong enough to buoy third-quarter results in shipping lines.
"Korean shipping firms are not getting a boost in the third quarter from consumer demand during the peak seasons as shipping rates remain flat," said Yoon Hee-do, an analyst at Korea Investment & Securities. "High bunker fuel prices continue to burden shipping companies as fuel usually accounts for a quarter of operating expenses."
Spurred by high fuel prices, shipping lines have invested in larger ships that are more fuel-efficient in recent years, which analysts say will allow higher levels of capacity while shipping rates remain low.
Large ship operators such as A.P. Moeller-Maersk are faring better than its smaller rivals because they have started from this year deploying the world's biggest, fuel efficient container carriers on routes to growing economies such as Africa, Latin America and the Middle East, analysts said.
Maersk Line spent $3.7 billion on an order for 20 container ships that can carry 18,000 containers per vessel, which consumes 35 percent less fuel on average than other ships in the Danish shipping company's lineup.
"But Hanjin and other Korean shipping firms do not have such large container ships on order. Regaining financial health is the most significant thing for now," Jay Ryu, an analyst at KDB Daewoo Securities, said.
"It is hard to expect a turnaround for the time being as domestic shipping lines strive to survive a global supply glut," Ryu said.
By Choi Kyong-ae
An extended slump may pose a threat to the survival of Korean shipping companies.
In the past five years, the global shipping industry has been going through a downturn that has caused several shipping operators and owners to collapse as capacity glut and lower shipping rates have squeezed margins, and operating capital has dried up.
On Wednesday, Hanjin Shipping, the country's biggest container carrier by sales, said it will borrow 150 billion won ($140 million) in financial support from Korean Air Lines, another major affiliate of Hanjin Group, to stay afloat.
Korean Air's board of directors held a meeting on the same day to help the sister company which is struggling with a severe shortage of operating capital, Hanjin Shipping spokeswoman Sonya Cho said.
The airline company took the 15.4 percent stake in Hanjin Shipping owned by Hanjin Shipping Holdings as security in return for the "emergency loan" extended to the shipping company, Cho said.
Hanjin Shipping will use the money for one year with an interest rate of 5.6 percent, she said. Hanjin Holdings owns a 36.2 percent stake in Hanjin Shipping under the wing of Hanjin Group, the country's 10th-biggest shipping-to-airline conglomerate by assets.
"If necessary, Korean Air will consider an additional loan to help put Hanjin Shipping back on track after consultations with the (group's) main creditor Korea Development Bank (KDB)," the spokeswoman said.
"We believe the financial support from Korean Air will have a positive impact on other various measures we are working on, including loans from its major creditor banks as well as perpetual bonds (with no maturity date), to overcome current liquidity problems," she said.
Hanjin Shipping is not alone in facing a dire situation.
Years of poor performance forced Hyundai Merchant Marine to delay payment of their debts and raise capital by issuing new shares or bonds. Hyundai Merchant asked the KDB to roll over its loans worth 270 billion won and the state-run bank accepted the request last week, giving relief to the cash-strapped company.
The country's second-biggest container carrier is also planning to issue new shares to raise 214.5 billion won next month as it has 420 billion debts maturing next year, Hyundai Merchant spokesman Choi Young-man said.
STX Pan Ocean, the country's biggest bulk carrier, filed for bankruptcy protection with the Seoul Central District Court in June as its parent company STX Group failed to weather the storm in the wake of the 2008 financial crisis.
The container-shipping business, often regarded as a barometer of the global economy, has had a difficult ride in recent years. Many ships ordered during the industry's boom years were put into service just as the economic slump slashed freight demand.
Analysts said Hanjin Shipping likely made an operating loss for the third quarter ended Sept. 30, as weak demand and overcapacity kept the lid on shipping rates. Domestic shipping firms are set to report third-quarter earnings next month.
In the second quarter, Hanjin swung to an operating loss of 55.7 billion won from an operating profit of 79.5 billion won a year earlier. Its net losses widened to 80.4 billion won from 1.27 billion won during the cited period.
In recent weeks, there was an increase in cargo shipments between Asia and North America during the back-to-school and year-end holiday peak seasons. But analysts say the shipment rush was not strong enough to buoy third-quarter results in shipping lines.
"Korean shipping firms are not getting a boost in the third quarter from consumer demand during the peak seasons as shipping rates remain flat," said Yoon Hee-do, an analyst at Korea Investment & Securities. "High bunker fuel prices continue to burden shipping companies as fuel usually accounts for a quarter of operating expenses."
Spurred by high fuel prices, shipping lines have invested in larger ships that are more fuel-efficient in recent years, which analysts say will allow higher levels of capacity while shipping rates remain low.
Large ship operators such as A.P. Moeller-Maersk are faring better than its smaller rivals because they have started from this year deploying the world's biggest, fuel efficient container carriers on routes to growing economies such as Africa, Latin America and the Middle East, analysts said.
Maersk Line spent $3.7 billion on an order for 20 container ships that can carry 18,000 containers per vessel, which consumes 35 percent less fuel on average than other ships in the Danish shipping company's lineup.
"But Hanjin and other Korean shipping firms do not have such large container ships on order. Regaining financial health is the most significant thing for now," Jay Ryu, an analyst at KDB Daewoo Securities, said.
"It is hard to expect a turnaround for the time being as domestic shipping lines strive to survive a global supply glut," Ryu said.
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