Receivership is a type of corporate bankruptcy in which a receiver is appointed by bankruptcy courts or creditors to run the company. A receivership provides a business with an opportunity to restructure to avoid liquidation by using a court-appointed trustee, referred to as a receiver, to oversee business operations.
The court filing came after the Korean Development Bank and other creditors of Hanjin shipping agreed not to extend loans to the debt-ridden shipper. They unanimously decided on Aug. 30 to stop supporting the world’s seventh largest shipping line at a meeting, as the shipper's self-rescue program was not viable enough for the creditors to keep the company afloat, the U.S. Department of Agriculture’s (USDA) Foreign Agricultural Service (FAS) said in a Sept. 2 report.
Hanjin Shipping has outstanding loans of 1.3 trillion won ($ 1.1 billion) that are set to mature next year. Of them, 650 billion won is required to aid them immediately this year, according to the FAS. Hanjin Shipping’s parent Group, Hanjin Group, said that they only can offer 200 billion won this year and another 200 billion won by next July through a capital increase by issuing new shares. Hanjin Group asked creditors to finance the shortage of oncoming debt payments. Creditors, however, rejected the offer. They are demanding Hanjin Group shoulder a greater burden in order for creditors to also take risks of extending more loans to the shipper. Following the creditors' decision, the Korea Stock Exchange issued a halt on the trading of Hanjin shipping shares as of Aug. 30, the FAS said.
Hanjin Shipping, with 99 container vessels, 11 terminals, 23 foreign corporate bodies and over 100 overseas business branches, is expected to be put up for sale, a severe blow to the nation's shipping industry, according to the FAS report. After the decision, the Korean government said that it will seek ways for Hyundai Merchant Marine to take over some of Hanjin Shipping’s profitable assets, including vessels, network and key personnel. Industry people view the deal as a de facto merger by Hyundai. Hyundai Merchant Marine, the second largest shipping company in Korea, has decided to mobilize 13 substitute vessels but it will not be enough to cover the full amount of freight that Hanjin Shipping has been handling, the FAS said. Hyundai will begin to operate 4 container vessels on the U.S. route. Each container vessel (with a capacity of 4,000 TEU) will depart for the U.S. on a weekly basis to fill in the gap caused by the absence of Hanjin, which is reported to have been handling 7% of sea container shipping between Korea and the U.S. Hanjin is known to have been handling 25,000 TEU on a daily basis. Hanjin’s subsidiary company called TTI, owns Pier T located in Long Beach, California, U.S.
The FAS noted Hanjin Shipping’s court decision will have limited impact on financial institutions as lenders already assigned reserves to cover potential loan losses. It is almost certain, however, that difficulties with port operation and shipping lines will occur for the next 2 to 3 months.
About 30 container vessels owned by Hanjin have been either seized or banned from leaving or entering ports throughout the world, according to the FAS. A total of 13 ports so far have banned the entry and or exit of Hanjin vessels out of concern that Hanjin will not be able to pay for the port usage charges.
According to the Korea Ship-owners Association, the freight for containers from U.S. West coast to Asia jumped after the Hanjin went into court receivership. The industry is speculating that freight costs could double the current rate. The FAS expects the prices of imported agricultural products in Korea will likely also increase and loose competitiveness as the freight costs go up.
