Seoul- Korea’s Hanjin Shipping Co. has no longer the financial support of creditors, leading its operations to a halt. Shares were suspended from trading after the company reached the lowest price since 2009. Creditors cutting their loans on Tuesday is a move that might gain court protection for the enterprise, but for now, bankruptcy is the next scenario.
After a meeting, Tuesday morning, Hanjin Shipping, South Korea’s largest container line, was abandoned by its creditors – including Korea Development Bank, Hanjin principal creditor- making the company’s revival efforts a more difficult task. But the lack of loans is not the only problem Hanjin Shipping is facing at the moment: the industry is struggling with a slump in a global trade and the slowest pace of economic growth in China, a country they depend on to survive.
Hanjin Shipping is not the only company grappling with its industry, and market and many other shipping lines worldwide have been forced to sell assets, idle some operations and cut jobs due to years of overcapacity that affected freight rates.
A Hanjin spokesman stated the company’s board of directors would decide on Wednesday how to proceed without the support of the creditors, including whether to file or not for court receivership. But if the board’s decisions do not save Hanjin, the company would become the biggest company in the industry to face bankruptcy.
Hanjin has been under a creditor-led debt revamp program since May, and it planned to raise a total of 500 billion won ($446 million) through asset sales and financial aid from Korean Air Lines, a unit of a conglomerate controlled by Hanjin Shipping. But for creditors, their numbers were not enough.
The Wall Street Journal reports that bankers and other lenders said the shipping company would need at least one trillion won in short-term liquidity to pay back maturing debt and cover arrears in payment to chartered shipowners as well as funding for operations.
Hanjin Shipping Co. is surrounded by an industry that makes it impossible to recover
Hanjin Shipping reached its lowest closing price since December 2009 in 2016. It last traded 24 percent lower at 1,240 won. The shares halted at 01:30 p.m. on Monday in Seoul. The company’s shared plunged 66 percent this year alone, compared to a 4 percent gain in the benchmark Kospi index, Bloomberg said.
Hanjin half-year report said the company’s total debt was 6.1 trillion won on June 30. In the past four years, Hanjin has been unprofitable and currently it has a market value of 304 billion won. At the end of December 2015, Hanjin had in cash and equivalents 241.1 billion won, but by June 2016, it fell to 180.4 billion.
But apparently, there is still hope. According to Bloomberg the company stated on Monday that some foreign banks agreed to extend the maturity of its debt. This action could help ease Hanjin cash shortage problem. The company added that it also made a pact with shipowners to adjust charter rates on vessels the liner leased, as part of a restructuring plan proposed by new creditors.
The South Korean government has said that companies that are struggling with debt to restructure could minimize job losses using the 11 trillion won fund created by South Korea’s financial authorities to recapitalise state-run banks. This economic strategy is meant to help banks to absorb bad debts from ailing shipping and shipbuilding firms reducing job losses.
The vice chairperson of Korea Shipowner’s Association suggested to merged Hanjin and Hyundai, Hanjin domestic rival. But on Tuesday the Financial Services Commission Chairman Yim Jong-Yong reiterated that the government is not considering the merging of the companies.
Source: Bloomberg