Hanjin's Fall: From Korea’s Top Shipper to Near Bankruptcy

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Hanjin’s Fall: From Korea’s Top Shipper to Near Bankruptcy

Once the world’s seventh-largest shipping company, Hanjin Shipping is on the fence and risks falling off the map – quite literally. Despite multiple efforts deployed in a grandiose fashion while under court receivership, the international shipper isn’t seeing the light at the end of the tunnel.

Documents from the Seoul Central District Court, the body in charge of the court receivership, indicates that according to accounting firm Samil PricewaterhouseCoopers, liquidating the financially troubled shipper is most cost effective rather than pushing efforts into its rehabilitation.

Hanjin’s value is estimated at $1.5 billion according to the accounting firm – which is actually the double of the value estimated earlier this year. The viability report was shared with the court in early December. A decision on Hajin’s fate is expected in early February 2017.

Hanjin’s stock closed at a low $0.37 USD in early December, down by 5.1 percent compared to the previous session’s close. The shipper’s stock price hit a record low for three straight days during the week of December 12th. Speculations about bankruptcy are likely to blame for the poor market performance. The poor standing of the company has earned a place on the Korea Stock Exchange’s ‘special monitoring’ list due to its worsening financial performance. Should its stock prices fail to recover by mid-April 2017 or if the court rules for bankruptcy, the company will be delisted.

What Happened

Bad luck could explain a part of it – due to falling freight rates, caused by a ship oversupply mixed in with the global economic slump, the shipper established in 1977 just couldn’t handle the financial strain. As Korea’s top shipper for nearly four decades, Hanjin once made up 7 percent of the country’s total harbour volume.

Facing losses that were piling up, Cho Yang-ho, Chairman of the Hanjin Group, agreed to hand over his management rights to the company’s creditors in January and opted for a creditor-led rehabilitation as a strategy to get the shipper afloat again. Unfortunately, creditors decided not to take the route of saving the shipping company and filed for court receivership in late August.

The decision to head into court receivership reverberated into international chaos as ships, often filled with cargo worth millions, were being sold off, stalled in port or simply abandoned. Many ships simply stayed at sea in order to avoid seizure – leaving the owners to scurry for alternatives on getting their shipments to port. The decision to leave ships stranded was a huge blow to the credibility to Korea’s shipping industry. Down the road, this could equal to lost business from shippers unwilling to take a risk with Korean companies.

In reaction to the crisis, the Korean government has promised to inject emergency funds, along with the creditors and Hanjin Group  in order to calm the waters down.

Looking at how it could generate any potential funds, Hanjin has taken to selling overseas subsidiaries. The company just signed a deal to sell its stake in the U.S. port operator that operates the biggest container terminal in Long beach, Calif. to Mediterranean Shipping Co. The deal was approved by the Seoul Central District Court on the condition it is also endorsed by the U.S. Bankruptcy Court and port authorities.

Another important Hanjin asset, its business network linked to its Asia-U.S. route, was sold to Korea Line Corp in November. The deal should be finalized in early January 2017.

The former President of South Korea, Park Geun-hyue, who was recently impeached and suspended from her official duties, had dismissed her cabinet in November as an effort to circumvent growing criticism that her government had influenced various decisions taken by Hanjin’s creditors. Before her impeachment, she had appointed the Chairman of the Financial Services Commission (FSC), Yim Jong-yong, as finance minister in order to put clear the Hanjin file up.

Despite the events that would soon arise and later on see President Park relieved of her duties, current Prime Minister, Hwang Kyo-ahn, who is now assuming the post of acting president, has decided to stick with Yim – ensuring that the emphasis be put on the continuity of Korea’s economic policy.

As for Hanjin, the future remains unclear as to what awaits the shipper: total liquidation or possibly a smaller role as a regional shipper. One thing for sure, either way, a giant has fallen.