Slaying the zombies
The government has decided to put the issue of a merger between Hanjin Shipping and Hyundai Merchant Marine on the table if they don’t accept its recommendation to merge.
If both refuses the suggestion, a vice ministerial-level meeting aimed at enhancing our industrial competitiveness under the leadership of the chairman of the Financial Services Commission will start to draw up a blueprint for restructuring those struggling companies.
The government’s action translates into full engagement in the restructuring of insolvent companies. The shipping industry is protesting the government’s move, saying a forced merger is not the way forward.
The shipping industry is in urgent need of restructuring - like our shipbuilding, steel-making, construction and petrochemical industries. The industry suffered a whopping 679.6 billion won ($586.4 million) cumulative loss over the last 10 months after a reduction of shipping from the 2008 global financial meltdown. Hanjin, the No. 1 shipping company in Korea, is no exception. Despite a rebound earlier this year, it’s still running an accumulated loss of 300 billion won. Without additional bailouts by creditors, it could collapse any time.
After the massive financial crisis of the “Big Three” shipbuilders - Hyundai Heavy Industries, Daewoo Shipbuilding & Marine Engineering and Samsung Heavy Industries - restructuring has emerged as a timely issue. About 3,200 zombie enterprises surviving only on loans are a time bomb. On top of that, the number of companies with credit ratings downgraded to junk status due to their inability to repay principal and interest are rapidly increasing. If the Fed raises interest rates in December, these zombies will most likely collapse. If the government leaves them as they are, economic recovery will end up an empty slogan.
Nevertheless, direct intervention in the private sector should be a last resort. The best option is spontaneous restructuring by businesses. The government must first hold major shareholders responsible before removing obstacles, including backward financial systems, vehement resistance from labor and muscle-flexing by politicians. The government must quickly pass a pending special bill aimed at offering tax benefits for voluntary mergers.
The corporate sector also must take responsibility, as it is accountable for the snowballing losses. Our economy does not have much time. When zombie companies fail to restructure themselves, the government must step in.
JoongAng Ilbo, Nov. 11, Page 34