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Creditors Bail Out Hanjin Heavy Industries

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HHIC's Subic Bay shipyard, HHIC Phil (file image)

By MarEx 2019-03-06 17:42:41

The creditors of Hanjin Heavy Industries and Construction (HHIC), the financially troubled South Korean shipbuilder, are expected to receive compensation for unpaid loans in a debt-for-equity swap which will leave them in control of the company. 

Korea Development Bank (KDB), the state-owned policy bank which holds the largest share of HHIC's outstanding debt, said that the group of creditors have agreed to accept HHIC shares in exchange for retiring debts of about $610 million. The deal, along with a 5:1 share reduction for current public shares, will leave the creditors holding about 84 percent of HHIC's stock. 

The creditors have selected Prof. Lee Byung-mo of Inha University to take over the management of HHIC. Lee has shipbuilding experience: he served as a vice president at DSME in 2011, and as president of now-defunct offshore shipbuilder STX in 2015. 

The agreement covers debts owed to a group of Philippine banks for projects at HHIC Phil, the shipbuilder's giant yard in Subic Bay. HHIC Phil has struggled to find new orders since the start of the shipbuilding downturn four years ago, and in December it laid off 7,000 workers due to a lack of work. It sought court receivership in January, and with the help of the Philippine government, it had been seeking a buyer. 

The news that HHIC Phil's creditors have bailed it out will assuage fears that a Chinese state-owned shipbuilder could step in to buy the yard. This would have given China a strategic foothold in Subic Bay, the former home of the largest American overseas naval base, the sprawling U.S. Naval Base Subic Bay. Other parties have also expressed interest in the possibility of purchasing all or part of the yard, including the Dutch shipbuilder Damen and an unnamed American company. Damen spokeswoman Harriet Slager told Nikkei Asian Review that Damen might enter into some form of cooperation with the yard rather than pursuing ownership.

The Philippine Navy is also interested in taking a minority stake if another company will join them in a buyout. The service plans to buy at least two dozen vessels over the next decade, and it would benefit with lower costs and a local boost in employment if it built ships domestically.