Hanjin Shipping tilting toward bankruptcy
By Yoon Ja-young
The country’s finance minister made it clear that Hanjin Shipping will receive no further creditor support until Hanjin Group fulfills its responsibility. With the court mentioning possible bankruptcy of the shipper, hopes of resuscitation seem to be fading.
“We will stick to the principle that the creditors can provide support only when there is excruciating self-rescue efforts (by debtor companies),” said Strategy and Finance Minister Yoo Il-ho at an economy-related ministers’ meeting, Wednesday. “The corporate restructuring will proceed based on this principle, unwavering.”
The fate of the world’s seventh-largest shipper seems to be turning negative, following remarks by the bankruptcy department of Seoul Central District Court Tuesday that the rehabilitation of Hanjin Shipping may be difficult. The shipper had filed for court receivership three weeks ago, leaving its fate in the hands of the court. The mention of possible bankruptcy contrasts with a few weeks ago when it seemed to lean toward resuscitation.
The court was especially concerned about snowballing debts such as the ship charter fees and oil fees as 53 of Hanjin’s 97 container ships are still stranded at sea. They are banned entry by port authorities on fears that the shipper won’t be able to pay its fees, while some vessels are facing seizure by creditors. The problem here is that debt is swelling while the vessels are failing to unload their customers’ cargo at ports. The ship charter fees that Hanjin owes ship owners have already surpassed 40 billion won, increasing by 2.4 billion won daily. The shipper is also likely to face an indemnification suit by customers who have not had their cargo delivered on time. The cargo on Hanjin’s vessels amounts to 16 trillion won ($14 billion), with an indemnification suit expected to surpass 1 trillion won. Though the shipper has been seeking a stay order with courts around the world to avoid seizure of the ships, there is no way it can avoid paying back these debts.
While around 100 billion won is estimated to be needed to unload cargo at major ports, which is the most urgent problem facing the shipbuilder, only 40 billion won, funded by the private assets of Hanjin Group Chairman Cho Yang-ho, have been provided so far. Hanjin Group had planned to let its airline unit Korean Air provide the remaining 60 billion won by taking Hanjin Shipping’s stake in Long Beach Terminal in California as collateral, but it is not likely to be realized soon.
“The board is considering every possible means. The 60 billion won is ready, but we need legal justification,” an insider at Korean Air said.
He said that the plan to provide Long Beach Terminal as collateral takes time as it needs consent from the banks where Hanjin already has collateral loans as well as MSC, which owns a 46 percent stake in the terminal.
“We are looking for ways to provide the 60 billion won as soon as possible, to fulfill the promise,” he added.
One of the options being considered is providing the 60 billion won by taking the shipper’s credit with cargo customers as collateral.
The court requested evaluation by an accounting firm to determine whether it should resuscitate Hanjin Shipping or let it go bankrupt. The report is likely to be submitted in November, based on which the court will determine the fate of the shipper.
Even if the bankruptcy court decides to uphold Hanjin, some are pessimistic about its normalization as it has already lost the network it built with customers and business partners.