Hanjin May Still Face Troubles Despite Equity Injection from Korean Air
David Lee, Sept. 22, 2016, 8:42 a.m.
Hanjin Shipping still faces a bumpy road ahead, despite Korean Air's decision to provide financial support for the near-bankrupt company. The airliner, the largest shareholder of Hanjin Group, decided late Wednesday to provide 60 billion won ($58.9 million) to the ailing shipper in loans secured by accounts receivable.
Hanjin Shipping’s accounts receivable are estimated to be around $200 million, as of the time when the company filed for the court receivership. The final decision came two weeks after the executive board started to hold rounds of meetings over how to inject 60 billion won to the shipper.
While the airliner initially decided to draw the funds by holding terminal Hanjin Long beach as collateral, they reversed the plan after some board members raised questions that it would be subject to breach of trust and was not practical.
The funds from Korea Air will contribute to the 100 billion won that Hanjin Group Chairman Cho Yang-ho pledged to offer to the troubled shipper. The remaining 40 billion won will come from Cho’s private assets.
While the 100 billion won in emergency funds are expected to somewhat ease the freight transportation problem, a tough road still lies ahead for both Hanjin Group and Hanjin Shipping, as costs for solving freight transportation problems have soared.
The court initially estimated that about 170 billion won would be needed to unload cargo. The costs, however, have increased to 300 billion won in the past two weeks, including overdue charterage, as delays in unloading cargo have led to 2.4 billion won in costs daily, the shipping industry said.
A series of possible compensation lawsuits may also pose challenges to the parent group in its handling of the crisis. According to the Korea Shipowners’ Association, the cargo currently loaded on Hanjin’s vessels are worth about $14 billion. Only 31 out of 97 container ships have been unloaded as of late Wednesday.
The more freight transportation is delayed over the next three to four weeks, the more likely Hanjin will face compensation lawsuits from shipowners, it added. If the shipowners file the lawsuits, compensation costs are projected to reach up to 4 trillion won, the shipping industry said.
While Korean Air tries to solve the freight issue, Korea Development Bank, the main creditor of Hanjin Shipping, is mulling loaning up to about 50 billion won to support the shipper in unloading its cargo.
Holding an emergency meeting early Thursday, the state-run bank is considering providing loans secured by accounts receivable.
If the loan decision is made, this will lead to a total of 180 billion won of financial support for the shipper, including 10 billion won from former Hanjin Shipping Chairwoman Choi Eun-young’s private account and 20 billion won drawn from Hanjin Shipping. This still falls short of the about 300 billion won needed to solve the cargo issue.