Alternative Solution
Hanjin Shipping is now in discussions about charter fee reductions with its major ship owner, Seaspan Corp., the world’s largest container ship-leasing company. Seaspan has so far refused to cut Hanjin Shipping's charter fees but reportedly offered an "alternative way" to provide commensurate financial relief to the shipping company.
An official from Hanjin Shipping said on August 15, “Seaspan notified us that it can adjust charter fees if it is not the debt-equity swap. So, we are looking for another way to have equivalent effect to cut charter fees.”
Until now, Hanjin Shipping has had discussions about charter fee reductions in the method of the debt-for-equity swap with 22 owners of its chartered ships. This is the same way that Hyundai Merchant reached an agreement with ship owners on the charter fee negotiations. However, Hanjina Shipping had struggled with Seaspan as the Canada-based firm strongly refused to reduce charter fees with the method.
Since Hanjin Shipping chartered a total of seven container ships from Seaspan, it cannot reach an agreement without concessions of Seaspan. Gerry Wang, chief executive officer of Seaspan, has taken a strong position, saying, “We would rather collect vessels than to accept Hanjin Shipping Co.’s request for a cut in charter rates.”
An official from the shipping industry said, “When the company keeps Hanjin Shipping’s stocks, which are acquired in lieu of charter fees, for years, it can make more profit according to the rise in stock prices. However, Seaspan can’t afford to do that as it is also going through a liquidity crisis due to the rapid drop in operating profits this year. As the listed company, Seaspan should consider the opposition of shareholders as well. So, the company is asking Hanjin Shipping for an alternative way which will not worsen its financial statements.”
In addition, Seaspan changed its stance as it can eventually suffer more damage when the shipping company goes into receivership. Currently, the container ship-leasing market is sluggish. Therefore, Seaspan will be forced to lend container ships at much lower rates when it collects ships from Hanjin Shipping.
All eyes are now on what “the third alternative” satisfying the interests of the two firms will be. Industry sources said that Seaspan is demanding the 100 percent repayable method, which will not adversely affect the balance sheets, even if should cut charter fees.
After all, Seaspan can ask Hanjin Group Chairman Cho Yang-ho and the group to make performance guarantee. This is why some market watchers said that Seaspan can ask for bonds using Hanjin Group’s assets as collateral.
When Hanjin Shipping reaches an agreement for charter fee reductions in some way or other, the company will be able to accelerate the normalization. If it succeeds in achieving the initial goal to lower charger fees by 30 percent, Hanjin shipping’s insufficient funds will be reduced to 1 trillion won (US$905.39 million) by the end of next year.
In addition, Hanjin Shipping plans to overcome the current crisis after it succeeds in delaying the repayment of debts borrowed to buy container ships and other vessels from banks around the world, after next year, which leads to the additional insufficient funds reduction of 500 billion won (US$452.69 million), and the group provides financial support of 400 billion won (US$362.15 million).
However, Hanjin Shipping has made little progress in its negotiations with the repayment of debts, unlike charter fees. Therefore, it is expected to be another cause of a long tug-of-war over the business normalization between Hanjin Shipping and creditors.
Creditors, including the Industrial Bank of Korea, said that Hanjin Shipping should submit the self-restructuring plan by the end of this week at the latest so that they can readjust debts by setting the size of the debt-equity swap based on the plan.