Korea’s Financial Services Commission said the government will promote sales of Hanjin Shipping’s core assets to Hyundai Merchant Marine in a bid to maintain competitiveness of the Korean shipping industry.
Hanjin Shipping, the largest container shipping company in Korea and seventh largest in the world, has filed for court receivership according to a statement from Korea’s Financial Services Commission (FSC).
The liner carrier said it filed to begin a company reorganization in a district court in Seoul “to seek normalization of operation through commencement of company reorganization” with the decision about future plans to be decided after a court review of the application.
“The government will promote sales of Hanjin Shipping’s core assets to Hyundai Merchant Marine in a bid to maintain competitiveness of the shipping industry,” the FSC said.
“In response to the market concern over the shipping sector, one of Korea’s key industries, the government will make sure to maintain the shipping industry’s competitiveness,” the FSC added. “Hyundai Merchant Marine (HMM) will acquire Hanjin Shipping’s core assets such as ships, overseas sales network and key work forces to retain Hanjin Shipping’s competitiveness as much as possible.”
The statement was issued after FSC Vice Chairman Jeong Eun-bo held a meeting Wednesday with officials from various agencies to discuss the possible government responses following Hanjin’s decision to file for court receivership.
FSC said Hanjin’s filing for court receivership will only have a limited impact on financial markets as the event has already been reflected to a considerable extent in the process of restructuring.
“In the stock market, Hanjin Shipping accounts for .003 percent, worth KRW 401 billion, of the Korean Stock Exchange’s KOSPI’s index market capitalization,” it said, noting Hanjin’s share price has declined 53.8 percent from KRW 3,540 per share on Jan. 2 to KRW 1,635 on Aug. 29.
“The impact on corporate bond market will be limited as credit ratings of Hanjin Shipping and Korean Air Lines already factored in the event,” the FSC said.
“Creditor banks have set aside loan loss provisions against most of possible losses. The additional amount of loan loss provisions the banks need is estimated to be KRW 0.3 trillion as Hanjin Shipping files for court receivership,” the commission said. “The outstanding issuance of corporate bonds has continuously decreased in the restructuring process so far from KRW 2.2 trillion at end-2013, KRW 1.7 trillion at end-2014, KRW 0.8 trillion at end-2015, to KRW 0.5 trillion at end-June, 2016. Most of issued bonds are held by institutional investors.”
Drewry Maritime Equity Research discussed this morning Hanjin’s decision to apply for court receivership after lenders decided to halt all support. “We have been highlighting these risks from 2013 and in our last update on troubled container shipping company, we had highlighted the broken balance sheet and how the company’s efforts will come up short,” Drewry said. “The debt burden was just staggering and it doesn’t surprise us that KDB (Korea Development Bank) effectively decided to pull the plug.”
Drewry said at the end of the second quarter of this year, Hanjin had a total debt of $4.2 billion, a net gearing ratio of 8.7 times, and cash at hand of $156.5 million.
“We have earlier highlighted that the industry transition will be time consuming,” Drewry said, expressing how alliances, along with mergers and acquisitions (M&As), are a “response to the low-growth industry, and should not be seen as a silver bullet.”
Drewry added, “The M&As and restructuring we’re seeing right now is more about survival and doesn’t necessarily lead to pricing power coming back. The overcapacity continues to persist and pricing power comes only when demand returns. We anticipate further pain and the industry may need to be prepared for another couple of tough years until the earnings impact of the consolidation becomes tangible.”
NEWS FLASH: Hanjin files for court receivership
