Hanjin Shipping’s Doom Spurs Rally in Hyundai Merchant Stock

Updated on
  • Rival’s stock jumps 28% as Hanjin votes for court receivership
  • Regulator says Hyundai Merchant may buy Hanjin’s assets

Hanjin Shipping Files for Receivership

Hanjin Shipping Co., South Korea’s biggest container shipping line, decided to apply for court receivership after lenders halted all support. Shares of Hyundai Merchant Marine Co. surged after the financial regulator said the rival may consider buying parts of the company in distress.

South Korea’s Financial Services Commission said in a statement Wednesday that Hyundai Merchant may consider taking over some of Hanjin Shipping’s assets, including vessels, network and staff. Hyundai Merchant said it will work with authorities to come up with measures without elaborating.

Hanjin is among shipping lines grappling with a slump in global trade since the 2008 financial crisis and the slowest pace of economic growth in China in a quarter century. The industry worldwide has been forced to sell assets, cut jobs and idle some operations to bolster finances as the slowdown coupled with overcapacity eroded freight rates. The board of Hanjin voted unanimously to file for court receivership at a meeting in Seoul Wednesday, a spokesman said.

“It means one less competitor but it really won’t change the fundamental problem the industry is facing,” said Park Moo Hyun, an analyst at Hana Financial Investment Co. in Seoul. “There will still be the same number of ships. What we really need is a way to cut down on capacity.”

Shares of Hyundai Merchant jumped as much as 28 percent to 9,520 won in Seoul, set for the biggest gain in more than two months. The company has a market value of about $1.6 billion. Hanjin’s 5.9 percent June 2017 local-currency notes fell to a record-low 27.3 percent of face value on Aug. 30, Korea Exchange prices show.

Hyundai Merchant, the nation’s second-biggest container line, is in the midst of a creditor-led debt restructuring program. Unlike Hanjin Shipping, it has managed to obtain financial help after meeting all requirements for funds. The state-run Korea Development Bank is now the biggest shareholder of Hyundai Merchant after swapping debt for equity. KDB owns about 14 percent of the company, according to data compiled by Bloomberg.  

The restructuring proposals submitted by Hanjin Shipping weren’t enough to address a cash shortage, main lender Korea Development Bank said Tuesday, dealing a blow to the revival efforts by a firm that’s been trying to reschedule debt under a voluntary creditor-led program since May.

Limited Impact

The decision will have limited impact on the country’s financial industry, the financial regulator said. There could be some impact on ports and the shipping industry and the government has set up a task force to ensure there are no delays to cargo flow, the agency said. South Korea’s Busan is the world’s sixth-busiest container port.

Hanjin Shipping is part of Hanjin Group, which also owns Korean Air Lines Co., the world’s third-largest cargo airline. Korean Air loaned funds to Hanjin Shipping and bought shares in the container line in 2014 to become the biggest shareholder with 33 percent. The group, which also counts airport services, logistics and mineral water among its businesses, is headed by Chairman Cho Yang Ho.

* Hanjin Shipping to file for court receivership at a district court in Seoul

* Court has right to decide whether to accept Hanjin Shipping’s filing

* If accepted, Hanjin Shipping assets to be frozen while the court deliberates next steps

* If accepted, court will name a new management to come up with a revival plan

* Hanjin Shipping was unprofitable in four of the past five years

* Had total debt of 6.1 trillion won ($5.4 billion) at the end of June; cash and equivalents fell to 180.4 billion won from 241.1 billion won at the end of December, according to its first-half report

* Reported a loss of 474.1 billion won in the first half of this year, versus 103.3 billion won profit a year earlier; January-June sales dropped 26 percent to 3.02 trillion won

* Market value tumbled to 304 billion won this week following a 66 percent plunge in its share price this year

* Company may still need as much as 1.3 trillion won in cash even after it agreed on charter-rate adjustments with shipowners and extended the maturities of some loans: Korea Development Bank

* Hanjin Shipping is the world’s seventh-biggest shipping line by capacity, with market share of 2.9 percent: Alphaliner, a maritime consultant

* Company has 132 container and bulk ships on its fleet, including 59 it owns

* Hanjin Group will put in all effort to help revive South Korea’s shipping industry, the shipping line’s parent group said in an e-mailed statement Tuesday