Desperate Measure

Hanjin Group chairman Cho Yang-ho decided to give up the management of its heavily indebted shipping arm Hanjin Shipping on April 22.
Hanjin Group chairman Cho Yang-ho decided to give up the management of its heavily indebted shipping arm Hanjin Shipping on April 22.

 

Following Hyundai Marine Shipping that is suffering from extreme financial difficulties, Hanjin Shipping Co. also decided to seek a self-rescue measure. As a result, creditors will manage the cash-strapped shipper jointly and enforce the shipper to drive a strong self-rescue plan in return for the postponement of repayment of the principal and interest. 

Hanjin Shipping and its big brother company Korean Air announced on April 22 that they held the board of directors meeting each and decided to give up the management control over the shipping arm of the Hanjin Group and apply for the creditor receivership in a bid to improve the financial structure of the shipper and normalize its management. Korean Air is the largest stake holder of Hanjin Shipping with its 33.23 percent stocks.  

The announcement came out a few days after Korea Development Bank (KDB) chairman visited Hanjin Group chairman Cho Yang-ho to discuss how to revive the shipping company, which reportedly resulted in Cho’s giving up the management of the heavily indebted shipper.

The creditors, led by state-owned KDB, will discuss the shipper's self-rescue plan early next month, and decide whether to approve the application. If Hanjin Shipping's application is approved, its maturing debts will be rolled over and part of them will be rescheduled.

Hanjin Group has made self-rescue efforts to normalize its shipping arm’s management so far, but the shipping company’s financial structure has been getting worse owing to the protracted recession in the global maritime sector.  

The creditors have poured around 1 trillion won (US$876 million) into Hanjin Shipping since 2013, and the shipper succeeded in returning to the black last year through intensive restructuring efforts such as by selling its assets like treasury stocks and buildings. However, the shipper’s total borrowing still amounted to 5.6 trillion won (US$4.9 billion) as of the end of last year. Hanjin Shipping now has to pay off or refinance 500 billion won (US$4.3 billion) worth of debt in the first half of this year.

Domestic shipping companies such as Hanjin Shipping and Hyundai Merchant Marine have been struggling with falling freight rates amid a global economic recession. Under the circumstance, the Korean government is pushing forward with restructuring of financially troubled companies in five sectors, including shipping industry.

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