STX Pan Ocean Files for Court Receivership on Debt, Losses
STX Pan Ocean’s largest creditor Korea Development Bank’s unexpected decision not to buy the company led to the filing, the carrier said in an e-mailed statement in Seoul, where it filed for receivership. The company also faced a “liquidity crisis” as it couldn’t raise enough funds because of the slump in bulk-shipping markets, it said.
Shares of the shipping line, now halted for trading, have fallen 46 percent in Seoul this year as parent STX Group tries to sell stakes in businesses including Pan Ocean as rates drop. The Baltic Dry Index, a measure of commodity shipping costs, has plunged more than 90 percent since touching a record high in 2008, and any delay in recovery could hurt more companies.
“If the commodities-shipping market remains dreadful, it’s likely things would turn sour for more shipping companies,” said Lawrence Li, an analyst at UOB-Kay Hian Holdings Ltd. (UOBK) “I don’t expect in the near term there will be another massive failure like STX as companies are now becoming more prudent with their cash management.”
Net debt totaled 5.37 trillion won ($4.8 billion) at the end of last year, according to Jang S.J., a company spokesman. Pan Ocean had $2.2 billion-equivalent of bonds and loans outstanding, according to data compiled by Bloomberg.
The company was unprofitable in three of the past four years as commodity-shipping rates sank.
“Oversupply in the industry and the purchase of new vessels have led to mounting debt and continued net losses,” STX Pan Ocean said in the statement.
Pan Ocean said on June 5 a decision to seek court receivership hinged on its request for emergency funding from Korea Development Bank. STX Group was in talks with the bank on selling its stake in Pan Ocean, STX said in an e-mailed response to Bloomberg News queries May 29.
“The court receivership doesn’t mean KDB will forsake Pan Ocean,” the lender’s Executive Director Ryu Heui Kyoung told reporters today. “The bank will take the role to normalize STX Pan Ocean if needed.”
The company’s request for court receivership won’t affect restructuring of other STX Group affiliates and the group will be reorganized around its shipbuilding business, Ryu said.
The yield on STX Pan Ocean’s 6.3 percent notes due 2015 jumped 51 basis points to 12.02 percent on June 5, the biggest one-day rise since May 30 when yields spiked to 11.5 percent from 9.15 percent, according to quotes from Nice Pricing Services Inc., a bond-pricing agency in Seoul. Benchmark yields for AA- rated companies in South Korea fell 5 basis points to 3.12 percent today, according to data from the Korea Financial Investment Association.
Korea Exchange on June 5 set a deadline for STX Pan Ocean to clarify its position on court receivership or debt rescheduling by 6 p.m. today. The shares traded down 15 percent the same day before trading was halted.
South Korea’s Financial Supervisory Service will monitor the liquidity status and the restructuring of the group’s affiliates following the developments at STX Pan Ocean, the agency’s Senior Director General Kim Jin Soo said by phone.
‘Big Credit Issue’
“The STX Pan Ocean issue is a big credit issue to which the authorities can only be sensitive toward,” Yoon Yeo Sam, a Seoul-based fixed-income analyst at Daewoo Securities Co. said today. “This will make financing more difficult for companies.”
The drop in shipping rates has hurt other shipping lines as well.
Last year, Sanko Steamship Co., a Japanese operator of 185 ships, went into bankruptcy protection after failing to reach agreement with creditors on an out-of-court turnaround. The company suffered from a drop in shipping rates as it failed to cut expensive charters fast enough, it said at the time.
Daiichi Chuo Kisen Kaisha (9132), based in Tokyo, received a bailout from its lead shareholder Mitsui O.S.K. Lines Ltd. earlier this year as a drop in shipping rates lead to losses. The shipping line had about 240 ships in its fleet last year, mainly for bulk shipping.
Pan Ocean shares slumped by the daily limit 15 percent in Seoul June 5 and were temporarily halted from Singapore trading on that day as the company’s Chief Executive Officer Seon Ryung Bae stepped down “due to personal matters,” according to a Singapore Exchange filing on that day.
STX Group put its controlling stake in Pan Ocean up for sale last year amid a rate slump that has caused shipbuilding orders to fall and forced its three biggest units to seek voluntary debt rescheduling.
STX Group was founded in 2001 by Kang Duk Soo, who used life savings from a 27-year career at another South Korean conglomerate, or chaebol, Ssangyong Group, to build a business group spanning the manufacture of cruise ships, wind turbines and apartment blocks.
The group was built partly by buying financially struggling companies. In 2001, Kang bought Daedong Shipbuilding Co., then-South Korea’s eighth-largest shipbuilder, which had just exited court protection, and renamed it STX Offshore & Shipbuilding Co. Kang bought Pan Ocean Shipping Co. three years later while it was in bankruptcy protection.
“Since it was expected that it would take more than one fund injection to save Pan Ocean, KDB probably decided to refuse STX’s request after considering the uncertainties that lie ahead,” said Chae Yi Bai, a researcher at the Center for Good Corporate Governance, a Seoul-based private organization that monitors South Korean business groups.