Fading into Grey
Korean Air, the largest shareholder of Hanjin Group, appears to be seeking alternative plans to save near-bankrupt Hanjin Shipping in the face of the board’s rejection of injecting money in the ailing shipper. As the global shipping crisis is getting increasingly serious, President Park Geun-hye also asked the group to come up with responsible measures. However, there seems to be no way out.
Accordingly, all eyes are now on whether or not Chairman Cho Yang-ho would additionally contribute private funds.
According to industry sources on September 19, Korean Air held a board meeting on the 18th to discuss ways to support Hanjin Shipping. The board initially made an agreement to draw up 60 billion won (US$53.52 million) with loans secured by the shipping unit’s stakes of Hanjin Long Beach Terminal in the U.S. as the collateral. But they reversed the plan after some board members raised questions that the nature of the plan is unrealistic. This is because holding the terminal as collateral requires approval from another shareholder, MSC, which owns 46 percent of the terminal’s shares, as well as six foreign financial institutions from which Hanjin has already taken out collateral loans. The company can inject 600 billion won (US$53.52 million) first and secure the collateral later. But, it is infeasible since it can cause controversy about malpractice.
As Korean Air’s financial support plan is highly likely to go up in smoke, Hanjin Group is making an every effort to come up with new measures.
However, the group is in dilemma due to no way out. Hanjin Shipping can take out loans on the security of its assets, excluding Long Beach Terminal, in order to evade malpractice but it has little valuable assets. In fact, the board of Korean Air talked about ways to put up sale credit of Hanjin Shipping as the collateral but scrapped it on account of many prerequisites.
The company also can expect private funds from largest shareholders. Chairman Cho got loans of 40 billion won (US$35.68 million) secured by his stocks of Hanjin KAL so he cannot take out more loans now. This is because he can’t maintain his management right of Korean Air if he gets additional secured loans.
Chiarman Cho owns 26.14 percent of Hanjin KAL shares, including affiliated persons, and Hanjin Kal has 35.11 percent of Korean Air stocks.
An official from the industry said, “Korean Air will hold a board meeting again in the near future to discuss plans to help Hanjin Shipping, but it will struggle to come up with good measures. Diversified methods should be considered, including a plan to help Chairman Cho Yang-ho inject more private funds while maintaining his management rights. The government and creditors should also come up with supportive measures before the crisis becomes more serious.”