Hanjin takes major step forward in its restructuring

The restructuring of the troubled shipbuilding and shipping industries took a step forward, as Hanjin Shipping joined a global shippers’ alliance, a key element of the self-rescue plan approved by the company’s creditors.

Meanwhile, the central bank governor hinted at the possibility of financing the restructuring by buying contingent convertibles known as CoCo bonds.

According to Hanjin Shipping on Friday, the company joined a shippers’ group called THE Alliance, with members including German shipping company Hapag-Lloyd, three Japanese companies - “K”-LINE, Mitsui O.S.K. Lines and Nippon Yusen Kaisha - and Taiwan’s Yang Ming. The six shippers signed an agreement that is subject to approval by all relevant regulatory authorities.

The operation of the new alliance is scheduled to begin in April 2017 for five years.

Joining a global alliance was a term that Korea’s troubled shipping companies have agreed to with their creditors in their self-rescue program. Being a member helps save operating costs since they share ships and ports.

The troubled Hyundai Merchant Marine (HMM) has so far failed to join any of the three global alliances, but says it will keep trying to join THE Alliance.

“The agreement is not finalized, and we still have time until the U.S. Federal Maritime Commission gives a final approval in September,” HMM said in a statement the same day. “The current position of THE Alliance is that they will finalize the inclusion of HMM after the normalization process ends around June.”

HMM said its biggest goal is wrapping up negotiations with global shipowners to lower their charter rates. The current alliance that HMM is in, the G6 Alliance, ends in March 2017.

HMM’s main creditor, Korea Development Bank (KDB), said it plans to keep supporting the shipping company, as there is still time for the shipping company to find an alliance by this September.

“KDB will actively support HMM’s financial normalization measures to bring down the debt-to-equity ratio to 200 percent, which may help it gain a second chance later in the year to join an alliance with an enhanced financial statement,” the state-run creditor wrote in a statement Friday.

HMM, with a debt-to-equity ratio exceeding 1,500 percent last year, aims to shave the ratio to below 400 percent by the end of May to get additional government funding.

It will do so by lowering vessel rental fees via negotiations with European owners, and by its creditors converting bad corporate bonds worth 1.02 trillion won ($870 million) into equity.

In line with the troubled firms’ self-rescue efforts, the discussion of how to recapitalize the big state-owned banks that are supporting them has also begun.

Bank of Korea Gov. Lee Ju-yeol on Friday said the central bank and government have started discussing forming a bank recapitalization fund as one option.

“No decision has been made on which financing method will take place,” Lee said at a press conference held Friday after announcing a freeze on the Bank of Korea’s key interest rate at 1.5 percent for the 11th consecutive month.

“Even if we end up choosing a recapitalization method, the exact volume of the funds should be determined based on the soundness of the debt that the policy banks currently hold, and based on different scenarios of how the debt-to-equity ratios will change.”

Lee suggested that a fund could recapitalize the troubled KDB and Export-Import Bank of Korea at a press conference last Thursday while attending the Asean+3 Finance Ministers’ and Central Bank Governors’ Meeting in Frankfurt.

The last time the central bank used a CoCo fund was in 2009, when there was a liquidity crunch caused by the global financial meltdown.

However, at that time, it purchased the bonds of commercial banks, whereas this time, it would be from state-owned banks.

The central bank’s monetary policy members unanimously voted in favor of keeping the key interest rate at 1.5 percent for the 11th consecutive month.

BY KIM JI-YOON, KIM JEE-HEE [kim.jiyoon@joongang.co.kr]