Freight Charges as Collateral
Hanjin Shipping Co. has come up with measures to get an urgent cash injection of 60 billion won (US$53.6 million) while avoiding any controversy over malpractice of Korean Air Lines Co., the biggest shareholder of the ailing shipper. Under the plan, Korean Air will provide a loan secured by the shipping unit’s bank account, which freight charges will be deposited, as collateral.
According to industry sources on September 20, Hanjin Shipping asked the Seoul Central District Court to consider the fund-raising plan through incumbent CEO Seok Tae-soo, who was chosen to manage the court receivership.
Earlier, the board of Korean Air made an agreement to draw up 60 billion won (US$53.6 million) with loans secured by the shipping unit’s stakes of Hanjin Long Beach Terminal in the U.S. as collateral. But it reversed the plan after some board members objected to the plan due to the possibility of controversy over malpractice. The company’s non-executive directors were strongly opposed to the idea, saying it is breach of trust when providing funds without collateral.
Accordingly, Korean Air plans to provide funds to Hanjin Shipping on collateral for its bank account that receives freight charges when cargoes are delivered to their final destinations.
A majority of cargoes carried by Hanjin Shipping are delivered based on deferred payment contract, meaning that the shipper receives payments from cargo owners when they are delivered to their final stops. The troubled shipper is projected to receive between 50 billion won and 100 billion won (US$44.66 million to 89.33 million) in its bank account as freight charges once cargoes that have been seized are able to make calls at ports and those that have been shipped are delivered to their final points of destination.
Meanwhile, the court said that Hanjin Shippng’s uncovered charter fees exceeded 40 billion won (US$35.73 million) since this month and the company can face cargo owners’ claims for damage worth over 1 trillion won (US$893.26 million) in the worst case.