Hanjin Shipping files for Chapter 15 bankruptcy protection

November 2016 | DEALFRONT | BANKRUPTCY & CORPORATE RESTRUCTURING

Financier Worldwide Magazine

Succumbing to the prolonged depression in the shipping market, South Korean carrier Hanjin Shipping has filed for Chapter 15 bankruptcy protection.

The filing by Hanjin, the seventh biggest shipping company in the world (comprising 141 ships, 128 of which are currently operating), was made in a court in New Jersey in an attempt to stop its creditors seizing its fleet of vessels.

Hanjin took action after being notified that its creditor banks had decided to end the financial support it was providing the company. This support included $896m worth of financial assistance which proved to be insufficient as the company tried to stay afloat amid volatility in the global shipping industry. Creditors also rejected the carrier’s proposed restructuring deal.

Given its status as a major player in the global shipping industry, the bankruptcy of Hanjin is a notable development, as the company accounts for 7.8 percent of trans-Pacific trade volume for the US market. Moreover, the company’s collapse is the largest ever bankruptcy filing for a container shipper.

As a result of Hanjin’s bankruptcy filing, the company’s vessels were denied access to ports at a variety of locations around the world, including 79 ships in the US, comprising 61 container ships and 18 bulk carriers. The lockup has caused a container shortage in the US.

A number of vessels have also been seized by creditors, including the state-run Korea Development Bank, according to a Hanjin statement. At the time of the filing, Hanjin ships were carrying cargo worth $14.5bn belonging to some 8300 cargo owners, according to the Korea International Trade Association.

However, since the news of Hanjin’s collapse was made public, the company’s largest shareholder – Korean Air Lines – has stepped into the breach with a pledge to lend $53.96m (60bn won) to the beleaguered South Korean carrier. A substantial portion of this is being provided courtesy of the personal wealth of Hanjin chairman Cho Yang-ho. In addition, Korea Development Bank has said that it will lend up to $45m to the shipping giant – news which had the immediate effect of sending Hanjin shares up 29 percent on the Korean Exchange.

Although the extent of the financial support pledged is considerable, Hanjin has stated that the total is still some way short of the 173bn won that it believes is needed to ensure that all cargo is unloaded. Further financial assistance may be requested when the rehabilitation plan requested by the New Jersey Court is submitted by Hanjin towards the end of the year.

Although the multi-million dollar loan to Hanjin provides a measure of relief for investors, ports, employees stranded at sea and retailers, the company’s collapse has coincided with high seasonal demand for the shipping industry ahead of the year-end holidays, meaning the shipping giant’s Chapter 15 bankruptcy filing is likely to cause ripple effects throughout the global supply chain, as well as the retail space, for some time to come.

In a further, extremely unwelcome development for the troubled carrier, it has been announced that the company’s former chairwoman, Choi Eun Young, is being investigated for alleged insider trading. Ms Choi, who left Hanjin in 2014, is being scrutinised following a report by the Wall Street Journal (WSJ) which revealed that she had sold all her shares in the shipping company just days before it filed for a debt restructuring programme in April 2016.

The WSJ report stated that Ms Choi, as well as her two daughters, had sold shares worth 3bn won ($2.7m) – a sale which prompted South Korea's Financial Supervisory Service to launch an investigation.

Fraser Tennant