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 (HMM) 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 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.
A statement from Moo-Kyoon Oh, chief executive of the container liner sales and marketing division at Hanjin Shipping, provided limited information, but he said the company “will exercise its utmost efforts to fulfill its duty to protect the interests of customers.”
With the decision by a Korean domestic creditor’s committee not to continue with a pending voluntary restructuring process to normalize Hanjin’s business it was “inevitable for the company to file for court receivership (i.e. rehabilitation proceedings under Korean insolvency law) in order to protect the interests of all stakeholders of the company and to minimize potential negative effects that may cause instability in the market,” he said.
Sources told American Shipper that Hanjin has stopped taking bookings everywhere it operates and is doing its best to accommodate cargo in transit, but has been shut out of many terminals, ports and railroads.
Reuters quoted a company spokeswoman as saying that ports in Shanghai and Xiamen in China; Valencia, Spain; and Savannah, Georgia had blocked access to Hanjin ships on concerns they would not be able to pay fees. American Shipper was not able to immediately confirm the report with Savannah.
The company’s ship Hanjin Rome, was arrested in Singapore late on Monday.
Sara Mayes, the chief executive officer and president of the Gemini Shippers Association said, “While it is too early to speculate on the ongoing operations of Hanjin Shipping, it is clear that this court filing will create significant challenges for both Hanjin customers as well as the overall Transpacific trade.
“The Hanjin court filing combined with the already tight space situation driven by the peak season will have significant impacts on space and bookings to both the U.S. East and West Coast,” she added. “We expect space and equipment availability in Asia to be extremely tight and urge members to book at least three weeks in advance.”
Ocean carrier schedule and capacity database BlueWater Reporting estimates weekly allocated capacity of the Asia to North American trade totals 384,003 TEUs a week, as of Aug. 28. Hanjin provided 31,988 TEUs of that capacity, or 8.3 percent.
The chart below, built using data from BlueWater Reporting, illustrates Hanjin’s services calling the U.S. and/or Canada. The carrier participates on 20 loops calling the U.S. and/or Canada, supplying a total of 46 vessels across 10 of these loops.
CLICK TO ENLARGE
If Hanjin is forced to stop trading only for a short time, it should have an impact on rates if other carriers do not rush to fill the void.
In North Europe, the impact is likely to be less, since BlueWater Reporting estimates the carrier only allocates 11,637 TEUs, or 5 percent of the total weekly allocated capacity on the trade of 232,937 TEUs.
Eusu Hanjin Logistics, a non-vessel operating common carrier (NVOCC) that is no longer part of Hanjin Shipping, made a similar observation, saying the reduction in transpacific market vessel supply “will result in short term capacity issues, which in turn will cause an increase in short-term spot rates.”
In addition, Eusu Hanjin Logistics said it anticipates supply chain disruption due to delays in vessel berthing and containers being discharged and released by terminal operators. The NVOCC said it also anticipates added costs related to those seizing Hanjin Shipping’s assets trying to recover their cost from cargo owners due to inability to recover from Hanjin Shipping.
At marine terminals in North America, American Shipper was told that customers will have to arrange for payment directly with the terminal operator for import loads, and most terminals are refusing to accept exports from the company.
While the entire container shipping industry is in a depression, it is not entirely clear why Hanjin has had to file for receivership and other companies have not.
Dirk Visser, senior shipping consultant at Dynamar, says the fact that Hanjin had filed for receivership was “a change of fortune, indeed, because we always had the impression here that Hanjin was the stronger party and now it seems that Hyundai is the surviving one.”
The reorganization of Hanjin is thought to be the biggest since U.S. Lines filed for Chapter 11 reorganization under the U.S. Bankruptcy laws in 1986, but much more complex because as a member of the CKYHE Alliance, Hanjin’s actions will impact partners COSCO, “K” Line, Yang Ming and Evergreen who share space with it on ships.
Evergreen said in a note to shippers that no Evergreen cargo will be loaded on vessels operated by Hanjin, while Hanjin’s cargo will not be allowed to be load onto Evergreen operated vessels.
COSCO Container Lines said, “We are closely monitoring the situation to ensure your cargo is protected.” The Chinese carrier added that it is engaged in emergency contingency planning of containers that may be on board Hanjin operated vessels.
“With regard to the cargo already shipped or to be shipped, we will do our utmost to take care and execute our liability of custody so as to avoid any possible obstacles to shipping and prevent both of us from the negative influence,” COSCO said, adding it will provide shippers with an update of the situation of their containers as soon as it is available.
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 the 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.”
