Hanjin Shipping Bonds Tumble as Creditors Await Restructuring

  • Notes hit record low in Seoul trading after receivership news
  • Company flagged liquidity crunch in 4Q15 amid industry slump

What's Needed to Turn the Shipping Industry Around?

Hanjin Shipping Co.’s local-currency bonds fell to record lows after South Korea’s biggest container liner sought court protection as creditors balked at extending more financial aid amid an industry slump.

Notes due June 2017 tumbled to 13.4 percent of face value as of 3:29 p.m. in Seoul, according to Korea Exchange prices, versus 27.3 percent on Aug. 30. The securities fetched as much as 90 percent of par in March. Trading in the company’s shares was suspended after a 24 percent plunge on Aug. 27 to their lowest level since 2009.

The liner had the equivalent of $5.3 billion of total liabilities on June 30, according to its latest quarterly filing. That surpasses the $4.5 billion carried by the company formerly known as STX Pan Ocean when it filed for bankruptcy protection in the U.S. in June 2013 in South Korea’s worst shipping failure at that time.

“There’s a low chance of recovery for Hanjin,” said Choi Jin Young, head of fixed income at Mirae Asset Global Investments Co. in Seoul. “Institutional investors have already removed the bonds and retail investors are dumping them now. It’s going to be a tedious process until any conclusion is reached on the fate of the company.”

Two calls to Hanjin’s Seoul and Gwangyang offices were not answered.

Choppy Waters

Hanjin Shipping’s court protection ended three years of efforts to revive the business, including a stock issue and a shareholder loan from the Hanjin Group that controls Korean Air Lines Co. The liner said in June it experienced a liquidity crisis in the fourth quarter of 2015, and ran out of options as additional cash infusion from the parent became difficult because of “financial and legal issues.”

Those efforts included a 300 billion won ($267 million) syndicated loan in December 2013, a 650 billion won stock-and-loan package from Korean Air in June 2014, and more than 450 billion won from the sale of old vessels and non-core businesses, according to its September 2015 presentation to investors.

About 70 percent of South Korea’s overseas shipments are by sea, of which Hanjin Shipping accounts for about 6 percent, according to Cheong Seung Il, a trade ministry official. While the government doesn’t expect a large impact on exports, there could still be some issues with machinery and textiles shipped via Hanjin, he said.