Making Matters Worse
It has been known that Hanjin Shippping, which filed for a creditor-led debt restructuring program, has unpaid a hefty 110 billion won (US$95.6 million) of charter fee.
Lloyd's List, a UK newspaper specializing in reporting shipping news, said that the Korean shipper currently owes US$11.6 million charter fee in arrears for three months, which has to be paid just to the Canadian shipper Seaspan for seven container ships with 10,000 TEU capacity. Hanjin also should pay US$43,000 per day for renting three container ships with 10,000 TEU. The total amount of payments in arrears is estimated to surpass 300 billion won (US$260 million) when including overdue operating costs such as harbor use fees and fuel costs.
According to the government and creditors, Hanjin’s charter fee payments in arrears are forecast to balloon to a 200 billion won (US$173 million) level next month. The shipper operates a total of 151 vessels – 100 container ships and 51 bulkers – as of April, 91 of which 63 container ships and 28 bulkers are chartered from foreign owners. Its charter fees would reach 928.8 billion won (US$807.6 million) this year.
To make matters worse, its ship was impounded for unpaid charter fees to the foreign owner. According to the private ship information site Marine Traffic on Friday, the 82,158 DWT bulker Hanjin Paradip operated by Hanjin Shipping was detained in Richards Bay on South Africa’s east coast, even if it was freed in May 27 (local time) three days after its detention. The owner is authorized to detain the ship until the shipper pays the overdue fees. The detained vessel is one of the chartered bulkers.
Hanjin’s bulker business represents 5.9 percent of its total sales. Shipping industry sources say the detention would not hit Hanjin so hard because the detained vessel was a bulker. Experts, however, say if a container ship is impounded for unpaid charter fees, this would deal a significant blow to the shipper.
Shippers have a partnership and jointly transport cargos. Hanjin Shipping recently agreed to join the new partnership, “The Alliance,” but should stick with the existing partnership “CKYHE” until March 2017. Container ships operated by Hanjin are loaded with cargos from the CKYHE shippers, as well as those from Hanjin. If Hanjin’s container ships are impounded for unpaid charter fees, the chances are high for Hanjin to face legal disputes with several shippers, which would take a heavy toll on Hanjin.
Hanjin is short of cash to pay charter fees now. Around 34 billion won (U$29 million) from the sale of its stake in H-Line Shipping are to flow into the cash-strapped shipper, but it is estimated that the proceeds will not be enough to cope with its financial woes. As it filed for a debt rescheduling, Hanjin has been allowed to postpone debt payment. Creditors, however, say they would not inject additional funds into the troubled company before it enters into the debt restructuring agreement.
Earlier, creditors reached agreement on the restructuring of Hanjin in early May on condition that they would not provide any assistance if the shipper fails to meet any of the three requirements – cutting charter rates, extending the maturity of debts and maintaining partnership with shippers. Once the debt rescheduling kicks off, creditors would provide Hanjin with interest rate cuts on loans, debt to equity swap and liquidity support.
Hanjin Shipping succeeded in extending the maturity of warrant bonds with approval of bondholders on May 19 after joining “The Alliance” on May 13. Now, it has only to negotiate over charter rates. However, industry sources predict that news on Hanjin’s unpaid charter fees would likely put it at a disadvantage on the negotiating table. They say it will not be easy for the shipper to demand rate cuts when it has failed to pay charter fees on time. In particular, Seaspan, to whom Hanjin owes charter fees, openly said there would be no negotiations.