Hanjin Shipping Received Warning from Financial Authorities, Creditors

With Hanjin Shipping being reluctant to agree to Hyundai Merchant Marine’s joining the THE Alliance these days, the South Korean financial authorities and creditors are looking to give a warning to Hanjin Shipping.

At present, Hyundai Merchant Marine is trying to obtain a membership in the THE Alliance, whose members include Hanjin Shipping. This constitutes the last stage of the restructuring of Hyundai Merchant Marine that follows the recent charter rate cut and debt restructuring through debenture holders’ meeting.

Any shipping company that is associated with no shipping conference such as the THE Alliance cannot help but have a very slim chance in competing with the other shipping companies. In the case of Hyundai Merchant Marine, it is Hanjin Shipping that holds the key. In general, membership in a shipping conference is determined based on its members’ unanimous consent. The THE Alliance has six members – Hapag-Lloyd, NYK, MOL, K Line, Yang Ming and Hanjin Shipping – and Hanjin Shipping and K Line have yet to provide their consent.

It is said that Hanjin Shipping is very lukewarm about the issue although it has never expressed its objection in an explicit way. This is because Hanjin Shipping is thinking that the presence of the two South Korean shipping companies in the same alliance can have a negative effect on its position in the group. The businesses of Hanjin Shipping and Hyundai Merchant Marine overlap to a large extent. For instance, container transport accounts for 92% of the business of Hanjin Shipping and 77% of that of Hyundai Merchant Marine. In addition, shipping to and from the Americas takes up 68% and 65% of those of Hanjin Shipping and Hyundai Merchant Marine, respectively.

Two other obstacles are the fact that Hanjin Shipping still has a far way to go in terms of corporate restructuring in comparison to Hyundai Merchant Marine and arguments in favor of business combination between the two shipping companies that are winning over an increasing number of those in the industry nowadays. As mentioned above, Hyundai Merchant Marine has already completed two of the three stages of its restructuring program, but Hanjin Shipping has completed nothing but its accession to the alliance.

It seems though that creditors have a different view, that is, Hanjin Shipping being trying to take advantage of the membership approval issue in order to deal with its liquidity crisis. Hanjin Shipping is likely to be in need of one trillion won or so even after the implementation of its self-rescue plan equivalent to approximately 410 billion won. The South Korean government, however, is planning not to provide any new assistance, claiming that Hanjin Shipping’s liquidity problems be resolved by Hanjin Shipping itself. Under the circumstances, it is said that Hanjin Shipping is looking to make a deal with the government by exchanging liquidity support by creditors with its approval of Hyundai Merchant Marine’s membership in the shipping conference.

The Korea Development Bank, which is the main creditor of Hanjin Shipping, recently said that such an attempt is imprudent. The financial authorities warned Hanjin Shipping not to make a wrong decision, too. “Hyundai Merchant Marine’s membership in the THE Alliance has nothing to do with a financial support for Hanjin Shipping,” a government official affirmed.