South Korean Government to Withdraw Support If Hanjin Restructuring Fails
Hanjin Shipping, once voted the world’s top container carrier by Dutch shipping lines, has doubled its annual loss to over $400 million USD in Q2 2016. Despite rising cargo volumes, overcapacity and declining ocean freight ratescontinue to drive mounting losses.
Reorganization Amid Financial Crisis
Hanjin is in the midst of a major restructuring, triggered by a liquidity shortfall that left the company unable to meet its debt obligations. For 2016, Hanjin is expected to repay $2.17 billion USD in loans.
The company is:
Negotiating new agreements with Korean banks and local stakeholders
Required to present a comprehensive repayment plan by early September 2016
Seeking a three-year extension on its debt to free up working capital for continued restructuring
Massive Debt and Limited Support
By the end of 2015, Hanjin’s total debt had reached nearly $5 billion USD. In May 2016, the Korea Development Bank (KDB)—a major creditor—granted approvals to continue its corporate recovery program.
However, the South Korean government, which had previously expressed willingness to support Hanjin’s investmentin larger 21,000 TEU container ships (despite its current fleet maxing out at 13,000 TEU), has now signaled a firm withdrawal of support if the company fails to restructure successfully.
Outlook
The future of Hanjin Shipping now depends on:
The credibility of its restructuring plan
Its ability to secure concessions from creditors and partners
Whether the South Korean government believes the company can remain solvent without further bailouts
Failure could result in insolvency or nationalization, dealing a major blow to South Korea’s shipping sector and global container logistics.