Fate of Hanjin Shipping in hands of creditors

Published : Apr 25, 2016 - 20:15 Updated : Apr 25, 2016 - 20:16

The fate of Korea’s two largest container carriers, which handle the bulk of Korea’s exports, now rests in the hands of creditors, after years of overcapacity and slowing trade globally led to a free fall in shipping prices.

Hanjin Shipping, the nation’s No. 1 carrier by capacity, on Monday officially filed for creditor-led rehabilitation, becoming the second major shipping line to succumb to a mountain of debt this year.

Along with the application for debt restructuring, the firm submitted a written pledge that its parent Hanjin Group and chairman Cho Yang-ho are giving up managerial rights over the shipping unit.

(Yonhap)

Smaller shipper, Hyundai Merchant Marine, is already a month into the territory, signing a “conditional” debt settlement agreement with creditors in March.

State-run Korea Development Bank is the main creditor of both firms.

The KDB said it plans to hold a meeting with nine other creditor banks of Hanjin later this week. A debt restructuring deal requires full consent of creditors.

The process to a debt deal, if any, is unlikely to be smooth sailing for Hanjin.

“Creditors won’t agree to debt restructuring unless Hanjin makes some gestures to convince them that it has done enough to resolve the crisis on its own,” Yonhap News Agency quoted a source on the creditor side as saying.

When it comes to the “gestures,” Hyundai Merchant’s case will be a point of reference, industry sources predicted.

As part of self-help measures, Hyundai Group’s chairwoman Hyun Jeong-eun in February spent 30 billion won ($26.1 million) from her own pocket, buying 4 million shares in the beleaguered shipping unit’s new stock issue. Hyundai Merchant’s shareholders agreed to a painful capital reduction plan, which would cut the company’s capital to just one-seventh of the current 1.2 trillion won to 170.3 billion won.

This contrasts with Hanjin Shipping’s former chairwoman Choi Eun-yeong’s 100 percent divestment of her equity stake in the firm two days before the news of its decision to turn to credit-led rehabilitation reached the market.

The Financial Supervisory Service is currently looking into the sale, suspecting Choi, who led Hanjin Shipping from 2007 to 2014, may have acted on insider information in violation of relevant laws.

Choi inherited control of Hanjin Shipping from her husband and former chairman Cho Soo-ho, whose older brother is Cho Yang-ho, the current chairman of Hanjin Group. In 2014, Hanjin Group took control of Hanjin Shipping from Choi.

Meanwhile, creditors of Hyundai Merchant are waiting for the outcome of the company’s negotiations with ship owners to lower charter fees before deciding whether to roll over some loans or provide new ones.

Hyundai Merchant, aiming for a 20 to 30 percent cut in the current fees, is said to be in the final stage of negotiations with 16 ship owners. Ship-leasing fees amounted to about 2 trillion won, a third of its total revenue last year.

Shares in Hanjin Shipping tanked on the Seoul bourse to 1,825 won apiece, falling by the daily limit of 30 percent. Trading in Hyundai Merchant shares is suspended until early next month as the company is in the process of a capital reduction to improve its balance sheet.

By Lee Sun-young (milaya@heraldcorp.com)