Hanjin Heavy Industries & Construction Co., a midsized shipyard in South Korea, announced on Jan. 8 that its affiliate in Subic of the Philippines has filed for a rehabilitation program with a Philippine court due to a prolonged business slump.
The Philippine court will decide within 120 days whether to pull HHIC-Phil Inc., which operates the Subic yard, under or allow it to proceed with the rehabilitation scheme under a court receivership. The Subic shipyard's assets were valued at 1.84 trillion won (US$1.63 billion) as of the end of 2017, accounting for 43.75 percent of Hanjin Heavy’s consolidated assets.
Hanjin Heavy owns a 99.9 percent stake in the Subic shipyard and the company and its Korean creditors are liable for various guarantees and debts of the shipyard. Therefore, the rehabilitation program can adversely affect the domestic industry. Korea Development Bank (KDB) issued some 500 billion won (US$444 million) worth of refund guarantee (RG) for the Subic shipyard. Hanjin Heavy provided a performance guarantee to the owner of a US$30 million (34 billion won) vessel to be built by the Subic shipyard.
Hanjin Heavy filed for its Subic shipyard’s rehabilitation program with the Philippine court in order to prevent the poor performance of the Philippine affiliate from affecting the parent company in Korea.
Hanjin Heavy signed an agreement with the KDB to normalize its operation and has entered a workout program. The company posted 150 billion won (US$133.21 million) in operating loss in 2015. However, it managed to record an operating profits of 49.30 billion won (US$43.78 million) in 2016 and 86.70 billion (US$77 million) in 2017. As the company also posted 73 billion won (US$64.83 million) in operating profit until the third quarter of last year, it is expected to record annual profits for three years in a row. However, this is not the case when its operating profits are calculated on a consolidated base, including the figures of its affiliates, including the Subic shipyard. Hanjin Heavy recorded a consolidated operating loss of 223.40 billion won (US$198.40 million) in 2015, 79.30 billion won (US$70.43 million) in 2016 and 116.70 billion won (US$103.64 million) in 2017.
In 2006, Hanjin Heavy built the Subic shipyard in the Philippines. The company built small special ships at the Youngdo shipyard in Korea and mid-size and large merchant ships at the Subic shipyard. However, contrary to expectations, the Subic shipyard was directly hit by the prolonged slump in the shipbuilding industry. Its actual output dropped from 1,161,618 GT in 2016 to 418,444 GT in the third quarter of 2018 and the rate of operation also plunged from 77.4 percent to 27.9 percent over the same period.
Hanjin Heavy is planning to push ahead with the sale of the Subic shipyard while it is waiting for the decision of the Philippine court. The company will sound out its intention to sell the shipyard to companies not only in the Philippines but also in other countries, including China.