Hanjin Shipping edges closer to court receivership

A miniature model of a Hanjin Shipping vessel carrying cargo, displayed at the shipping company’s office in Yeouido, southwestern Seoul, on Monday. [NEWSIS]

Creditors of Hanjin Shipping unanimously rejected a turnaround plan submitted by the management, pushing the country’s largest container shipping company to the brink of court receivership.

Vice presidents of six banks, including main creditor Korea Development Bank (KDB), concluded that Hanjin’s revised proposal to raise some 500 billion won ($447.4 million) in new borrowing and by issuing new shares would fall short of reviving the cash-strapped company after a meeting at the main office of the KDB. The main creditor maintained that the company needed at least 700 billion won to pay outstanding debt and freight fees and keep operations going.

Lee Dong-geol, Korea Development Bank’s chairman, indicated that Hanjin Group Chairman Cho Yang-ho should have coughed up more of his own money to save the shipping company.

“Hanjin made efforts to turn the company around but it appears that the owner failed to take due responsibility,” he said during a press briefing held in Yeouido, western Seoul, on Tuesday.

In plans submitted on Aug. 25 and Aug. 29, Hanjin pledged to raise a turnaround fund of 500 billion won, according to the KDB. The shipping unit would be responsible for raising 400 billion won while Hanjin’s affiliates and chairman Cho would chip in 100 billion won.

KDB said it wasn’t enough to keep the company going.

“An audit showed that Hanjin needs 1 trillion won to 1.3 trillion won even if freight rate adjustments with ship owners go smoothly,” the bank said in a statement.

The deadline for negotiations with creditors is Sunday, so Hanjin is running out of time, making court receivership more likely.

The process of court receivership will likely result in the company being dismantled, ending 40 years as the nation’s No. 1 shipper. Hanjin Shipping is also the world’s seventh largest shipping company.

A potential way out is Hyundai Merchant Marine, another ailing container company, merging with Hanjin. But the chief of the Financial Services Commission, the country’s financial regulator, recently expressed skepticism about that taking place.

Without support from creditors, Hanjin Shipping will have to file for court receivership before Sept. 4, when its creditor-led rehabilitation scheme is scheduled to terminate.

“We tried our best to the end to normalize the management of Hanjin Shipping,” said parent Hanjin Group through a press release on Tuesday.

“We managed to obtain more support from foreign financial institutions and shipowners, and we feel sorry that wasn’t enough to gain additional support from creditors. Even if we go into court receivership, Hanjin Group will continue to do everything we can to rehabilitate our shipping business.”

Shares of Hanjin Shipping stopped being traded on Tuesday after plunging as much as 26 percent upon the news. Shares of Korean Air, the shipping company’s largest shareholder, however, rose 6.87 percent to 31,100 won while Hanjin Kal rose 5.85 percent to 19,000 won compared to the previous trading day.

BY PARK EUN-JEE, JIN EUN-SOO [park.eunjee@joongang.co.kr]