By Park Si-soo
Hanjin Group Chairman Cho Yang-ho's drive to salvage the firm's sinking shipping affiliate appears to have gained momentum.
Hanjin Shipping said Wednesday it secured 1.6 trillion won ($1.58 billion) by selling its dry bulk business unit to a private equity firm.
On the same day, Hanjin Energy sold off a 28.41 percent stake in Korea's third-biggest oil refiner S-Oil for 1.98 trillion won to Saudi Aramco, a deal easing the financial troubles of Korean Air, owned by Cho, whose ongoing ordeal was largely driven by its lavish financial aid to the shipping company.
Simply put, the group secured 3.6 trillion won with the two deals and it seems to be enough to put Hanjin Shipping back on track. Yet analysts don't readily express a rosy outlook, citing the stagnant growth of shipping business. They cautiously warn that the group will face a liquidity crisis should Hanjin Shipping's performance remain as poor as it has shown in recent years.
Hanjin Shipping has suffered a loss for three consecutive years since 2011 as a result of declining shipping orders from advanced economies, lower shipping rates and currency losses.
Last year, the company's losses amounted to 680 billion won. In the first quarter of the year, its net loss reached 225 billion won, and it is widely expected to suffer a continued loss this year.
Park Eun-hye, a spokeswoman for Hanjin Shipping, said the company is implementing its own revival plans, centered on the selling of old vessels and a shipping terminal in Spain. She said a consortium of the Industrial Bank of Korea and Korea Investment Partners had been selected as a preferred bidder to take over the terminal and negotiations between the two are underway.
"Everything is going smoothly," Park said.
What's worrisome is that with the years-long slump in the shipping industry showing little sign of easing, Chairman Cho seems determined to continue financial injection into the shipping company through Hanjin's money-making affiliates, especially Korean Air.
"Hanjin Shipping has grown up with many difficulties. We had a tough time, but never collapsed," said Cho on April 29, taking over the firm's leadership from his predecessor Choi Eun-young. "I will make full use of Hanjin Group's human and financial resources to help the company overcome the ongoing crisis."
Early June, Korean Air purchased 400 billion won worth of shares in Hanjin Shipping to become the largest shareholder with a 33.2 percent stake. This decision was intended to tighten Cho's grip on Hanjin Shipping as well as help easing the company's financial burden.
At the same time, it stirred worries about the air carrier's financial health, making a domestic corporate credit rating agency NICE Investors Service to downgrade the firm's rating to A- from A
"At the moment the company's financial burden is very much stretched," said Song Mi-kyung, a NICE researcher. "The company has continuously invested to increase its fleet. And it has been running a U.S. affiliate to build a hotel in Los Angeles, which requires a payment guarantee. Currently that amount has increased substantially,"
Analysts said Korean Air's increased stake in Hanjin will make it harder for the former to rack up a profit on a consolidated basis this year. Last year, the company suffered a loss of 385 billion won, shifting from a profit of 256 billion won a year earlier.
Last month, the Solidarity for Economic Reform criticized Korean Air's purchase of shares in Hanjin, calling it a "toxic" deal that can leave the group's financially healthy affiliates vulnerable to a liquidity crisis.
"Korean Air should stop helping Hanjin Shipping or they will collapse together," the organization said in a statement.
A Korean Air spokesman refused to comment on the matter.
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| Cho Yang-ho Hanjin Group chairman |
Hanjin Shipping said Wednesday it secured 1.6 trillion won ($1.58 billion) by selling its dry bulk business unit to a private equity firm.
On the same day, Hanjin Energy sold off a 28.41 percent stake in Korea's third-biggest oil refiner S-Oil for 1.98 trillion won to Saudi Aramco, a deal easing the financial troubles of Korean Air, owned by Cho, whose ongoing ordeal was largely driven by its lavish financial aid to the shipping company.
Simply put, the group secured 3.6 trillion won with the two deals and it seems to be enough to put Hanjin Shipping back on track. Yet analysts don't readily express a rosy outlook, citing the stagnant growth of shipping business. They cautiously warn that the group will face a liquidity crisis should Hanjin Shipping's performance remain as poor as it has shown in recent years.
Hanjin Shipping has suffered a loss for three consecutive years since 2011 as a result of declining shipping orders from advanced economies, lower shipping rates and currency losses.
Last year, the company's losses amounted to 680 billion won. In the first quarter of the year, its net loss reached 225 billion won, and it is widely expected to suffer a continued loss this year.
Park Eun-hye, a spokeswoman for Hanjin Shipping, said the company is implementing its own revival plans, centered on the selling of old vessels and a shipping terminal in Spain. She said a consortium of the Industrial Bank of Korea and Korea Investment Partners had been selected as a preferred bidder to take over the terminal and negotiations between the two are underway.
"Everything is going smoothly," Park said.
What's worrisome is that with the years-long slump in the shipping industry showing little sign of easing, Chairman Cho seems determined to continue financial injection into the shipping company through Hanjin's money-making affiliates, especially Korean Air.
"Hanjin Shipping has grown up with many difficulties. We had a tough time, but never collapsed," said Cho on April 29, taking over the firm's leadership from his predecessor Choi Eun-young. "I will make full use of Hanjin Group's human and financial resources to help the company overcome the ongoing crisis."
Early June, Korean Air purchased 400 billion won worth of shares in Hanjin Shipping to become the largest shareholder with a 33.2 percent stake. This decision was intended to tighten Cho's grip on Hanjin Shipping as well as help easing the company's financial burden.
At the same time, it stirred worries about the air carrier's financial health, making a domestic corporate credit rating agency NICE Investors Service to downgrade the firm's rating to A- from A
"At the moment the company's financial burden is very much stretched," said Song Mi-kyung, a NICE researcher. "The company has continuously invested to increase its fleet. And it has been running a U.S. affiliate to build a hotel in Los Angeles, which requires a payment guarantee. Currently that amount has increased substantially,"
Analysts said Korean Air's increased stake in Hanjin will make it harder for the former to rack up a profit on a consolidated basis this year. Last year, the company suffered a loss of 385 billion won, shifting from a profit of 256 billion won a year earlier.
Last month, the Solidarity for Economic Reform criticized Korean Air's purchase of shares in Hanjin, calling it a "toxic" deal that can leave the group's financially healthy affiliates vulnerable to a liquidity crisis.
"Korean Air should stop helping Hanjin Shipping or they will collapse together," the organization said in a statement.
A Korean Air spokesman refused to comment on the matter.
