[Courtesy of Hanjin Group]
South Korean creditors rejected a new self-rescue plan presented by Hanjin Shipping, one of the world's top ten container carriers, Tuesday, opening the way for court receivership unlesss there is no immediate action from the country's largest container carrier.
In a unanimous decision closely watched by foreign and domestic investors, the creditors led by the state-run Korea Development (KDB) refused to extend fresh loans to Hanjin Shipping, the troubled arm of South Korea's Hanjin Group, as the rescue scheme failed to meet their demands.
Stock authorities suspended the trading of Hanjin Shipping shares from 1:30 pm (0430 GMT). Creditors did not say whether they would ask for court receivership.
Hanjin submitted a news self-rescue plan last week that included sales of more assets and a capital infusion by major shareholders, including Korean Air. The company offered to raise 400 billion won (358 million US dollars) by selling stocks to Korean Air, though creditors want Hanjin to cover some 700-900 billion won.
KDB head Lee Dong-geol accused the group's ruling family of showing an "irresponsible" attitude and expressed concern that Hanjin may try to divert fresh loans into foreign creditors.
Like other tycoons, group boss Cho Yang-ho and his family control the group through a complex web of cross-shareholdings. They have resisted pressure to donate a big amount of personal wealth for corporate restructuring.
"We try hard to minimize financial damage and losses," he said, suggesting Hanjin could avoid court receivership if it takes "proper" measures.
On Sunday, Hanjin said that significant progress has been made in negotiations with Seaspan and other owners of chartered ships over a cut in leasing rates and also on the proposed postponement of debt repayments to foreign creditors.
Seaspan has been reluctant to renegotiate its contracts because that could open the door for other shippers to ask for charter relief, at a time when average box freight rates are at record lows.
Seaspan's rate cut may help the South Korean company save some 800 billion won, Hanjin said, adding it is also expected to see good results in delaying loan repayments.
Hanjin Shipping needs at least one trillion won in its short-term liquidity to pay back debt and cover arrears in payment to chartered ship owners as well as operational funds. But its viability was called into question after the company's second-quarter operating loss widened to 228.9 billion won from 115.8 billion won a year earlier.
An association of South Korean shipowners warned Monday that putting Hanjin Shipping under court receivership could create a chaotic situation in global cargo delivery and a huge amount of losses estimated at 17 trillion won.
Korea Shipowners' Association vice chairman Kim Young-moo called for a continued supply of credit to keep afloat Hanjin, saying court receivership would probably mean the company's liquidation.
"It may bring to a halt the planned delivery of 1.2 million containers scattered around the world, leading to a great logistical disturbance," he said.
Kim urged creditors to rescue Hanjin first and combine it later with the country's second largest container carrier, Hyundai Merchant & Marine, which is also under creditor-led restructuring so that domestic shipping lines could recover their competitive edge in the global market.
However, Financial Services Commission chairman Yim Jong-yong flatly ruled out the merger between Hanjin and Hyundai Merchant. "That's not possible under the current circumstances," he said, adding the government has worked out various measures to minimize "an adverse effect" stemming from an overhaul of troubled firms.
Creditors also insisted court receivership would not seriously affect their balance sheets because they have set aside sufficient loan-loss provisions.
Aju News Lim Chang-won = cwlim34@ajunews.com
reporter
Park Sae-jin
swatchsjp@ajunews.com
