Creditors give HHIC’s rescue plan green light

Creditors of Hanjin Heavy Industries & Construction (HHIC) inked a memorandum of understanding with the company on Wednesday in approval of the shipbuilder’s self-rescue plans.

The creditors, including Korea Development Bank, will support the company with 120 billion won ($102 million) in funding, in addition to 130 billion won that was already provided in February.

The deadline for payment of the principal on the company’s debt has been delayed until December 2018, and about 100 billion won of interest will be swapped to equity as part of the creditors’ support package.

Now that HHIC has time and cash to push forward with their reform plans, the company will focus on strengthening their competitive businesses and cutting areas that are struggling.

The company plans to sell off its real estate, which is expected to bring in about 2 trillion won, and also sell its energy-related affiliates such as Daeryun Power.

The company plans to switch its shipbuilding focus. It will ramp up its shipbuilding businesses mostly through the Subic Shipyard in the northern edge of Subic Bay in the Philippines, which is capable of producing mega-sized merchant ships because of its large-sized dock. The shipbuilding is also cheaper due to lower labor costs. Its smaller shipyard in Yeongdo, Busan, will focus on building special-purpose vessels such as icebreakers.

“Labor cost per worker in Korea is around 70 to 80 million won. However in the Philippines, the cost is slashed to 5 million won,” a spokesman from the company said. “It is even cheaper than labor cost in Chinese shipyards, which is around 15 million won per person.”

Expectations for the Subic Shipyard are high, as creditors have reportedly approved of issuing a refund guarantee from the shipyard as well with signing the memorandum of understanding. As the purchaser normally pays a substantial part of the vessel’s price in advance of delivery, the refund guarantee provides a form of security for installments.

Prior to creditors approving the company’s self-rescue plan, HHIC had been downsizing and had accepted voluntary retirements from about 60 workers who left last month, according to a statement released by the company’s labor union.

The labor union had been against the company’s restructuring measures until last month but recently agreed to the self-rescue measures.

“We understand our company’s situation is very serious, and we thought it was best to get the cash flowing in the company to get things going,” a labor union member said.

BY KIM JEE-HEE [kim.jeehee@joongang.co.kr]