Debt-equity swap planned for HHIC

The Korea Development Bank (KDB) announced Wednesday that creditors including Filipino banks have decided to normalize the management of Hanjin Heavy Industries and Construction (HHIC) through a debt-equity swap.

KDB, the main creditor of the construction and shipbuilding company, said the creditors have agreed to raise 687.4 billion won ($608.9 million) in paid-in capital. It added that creditors from home and abroad have agreed to participate in the capital increase through a debt-equity swap.

The creditors have decided to carry out a capital reduction on 91.5 million shares, which is 86.3 percent of the shipbuilder’s 106.5 million shares.

Additionally, 33 million shares owned by Hanjin Industries and Construction Holdings will be retired.

The capital reduction on common stocks will be at a ratio of five to one.

The 687.4-million-share capital increase via third-party allocation will be issued at 10,000 won per share.

If the capital increase is completed, creditors will own more than 80 percent of the shipbuilder.

Additionally, the largest stakeholder will be switched from HHIC Holdings to KDB.

The state-owned bank said once the capital increase is completed, it will be able to build the foundation to normalize the shipbuilder by resolving risks including problems surrounding the company’s Subic Bay shipyard in the Philippines.

The Subic shipyard is considered the major contributing factor to the Korean shipbuilder’s insolvency.

The shipyard in January filed for bankruptcy protection at the Olongapo City Regional Trial Court.

The shipyard, which was first built within the special economic zone in the Philippines in 2006, has been struggling to get new orders since the global ship market started winding down in 2016. That year, the shipyard was not able to win a single container ship order, which is its specialty.

In 2016, it was only able to get orders for two tankers, followed by six in 2017 and two LPG vessels last year.

In 10 years, HHIC had invested 700 billion won into the shipyard.

With orders shrinking, the shipbuilder has been rapidly losing money. As of the of end of last year, the company’s net loss expanded to 1.32 trillion won from 288 billion won in 2017 and its equity deficit amounted to 742.2 billion won.

The shipbuilder has been suspended from the stock market since Feb. 13.

Stock trading is expected to resume as its capital erosion is likely to be resolved with the capital increase. HHIC has until April 1 to prove to the Korea Exchange, the Korean stock market operator, that its problems have been solved.

HHIC Holdings saw its share prices rise 12.47 percent to close 4,105 won on Wednesday.

However, there are concerns that while the shipbuilder’s worries of capital erosion might be solved, it may be excluded from the Kospi 200, the index of the top 200 companies that is listed on the futures and options markets.

“As the company’s market capitalization is shrinking rapidly, it might be excluded from the Kospi 200 as early as in April or at least in June,” said Choi Chang-gyu, an analyst from NH Investment & Securities.

BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]