Creditors of Hanjin Shipping may approve rehabilitation program

Creditor banks of cash-strapped Hanjin Shipping are likely to give the ailing container carrier a chance to avoid bankruptcy by approving a corporate rehabilitation program.

Seven lenders, led by state-run Korea Development Bank, are expected to allow the country’s No. 1 shipper to undergo rehabilitation Wednesday, after the company submitted a formal request to restructure its debt on April 29, according to sources.

Facing a 5.6 trillion won ($4.9 billion) wall of debt, the company said it would raise about 410 billion won by selling stakes in the bulk-shipping and other units as well as some property, but creditors requested a more detailed self-help plan.

Hanjin is following the footsteps of its smaller rival Hyundai Merchant Marine which received a nod from its creditors for a self-rescue plan in March to put its business back in order.

“For the sake of fairness, the creditor-led debt revamp will be approved for both Hanjin and Hyundai,” an official from the creditor’s side said.

Hanjin’s proposal can be realized only with the unanimous agreement of all creditors who need to provide an aid package such as debt-equity swap in return for the firm’s self-rescue efforts like asset sales.

The debt-ridden duo have been in the red for years as overcapacity squeezed transportation rates amid slowing global trade.

With borrowing from banks accounting for 12.5 percent, or 700 billion won, of the firm’s 5.6 trillion won gross outstanding debt, it still has daunting challenges down the road even after receiving the green light from creditors.

The firm is set to begin negotiations with ship owners to cut down ship-leasing fees by 30 percent which currently costs about 1 trillion won per year.

“Normalization will be possible when Hyundai Merchant Marine and Hanjin Shipping clear three hurdles,” Yim Jong-yong, chairman of Financial Services Commission told reporters on Friday, referring to a reduction of chartering rates, support from individual investors for the extension of its debt maturity and assistance from creditors.

“If it fails, the two shipping firms will be put under court receivership in accordance with principles,” he said.

It had been widely expected that court receivership is the more likely scenario for Hanjin as the firm faces plenty of issues with regard to restructuring.

Choi Eun-yeong, former chairwoman of Hanjin Shipping, has been questioned by investigators on suspicion that she and her daughters sold their remaining stocks in the company using insider information days before its application for debt restructuring.

Korea Credit Guarantee Fund, a state-run loan guarantee provider which holds 400 billion worth of Hanjin Shipping debt, decided to stay out of the debt-relief talks.

By Park Han-na (hnpark@heraldcorp.com)