Hanjin Shipping may go bankrupt after missing the deadline for raising funds.

2016-08-25 09:00

Hanjin Group missed the August 20 deadline to provide financial assistance to Hanjin Shipping to alleviate its cash flow problems, leaving Hanjin Shipping facing the serious threat of court receivership or even bankruptcy.

Previously, creditors had demanded that Hanjin Group inject 400 billion won ($365 million) to help Hanjin Shipping solve its liquidity problems. Now, Hanjin Shipping faces a liquidity shortfall of over $1 billion.

According to the plan, Hanjin Shipping needs to submit a comprehensive restructuring plan to its creditors by September 4, including reducing fleet charter fees. However, Seaspan, one of the owners of the container ships it charters, rejected Hanjin Shipping's request for a rent reduction, hindering Hanjin Shipping's ability to meet the rent reduction conditions within the stipulated time.

It is understood that after the end of the joint management system with creditors on September 4, Hanjin Shipping is expected to enter "legal management" procedures. Given the nature of the shipping industry, entering legal management will result in several months of operational disruption, ultimately leading to a high likelihood of bankruptcy.

Hanjin Shipping originally planned to propose a self-reconstruction plan on August 19 or 20, but has now missed the opportunity. Hanjin Shipping's creditors pointed out that "if Hanjin Shipping cannot raise sufficient funds, it has no choice but to enter legal management".

Creditors have sought 700 billion won in financial aid from Hanjin Group, the major shareholder of Hanjin Shipping. However, according to a Hanjin Group official, "We have already provided 1 trillion won in financial aid to Hanjin Shipping. If we add another 400 billion won or more, the entire group could face a crisis. Therefore, to restructure the South Korean shipping industry, we may consider giving up operational control of Hanjin Shipping."

According to Korean media reports, Ahn Changho, a professor at Incheon University's Northeast Asian Logistics Institute, pointed out that the bankruptcy of Hanjin Shipping would be the biggest crisis for the Korean shipping industry, leading to a decrease in major port transactions and order cancellations from domestic shipyards.

Hanjin Shipping is the world's eighth-largest container shipping company. Over the past five years, Hanjin has reported losses four times, and its debt-to-equity ratio reached 847.8% by the end of 2015. Hanjin has 389 billion won in corporate bonds maturing this year, but its cash on hand was only 241 billion won at the end of last year.

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