Hanjin asks biggest creditor to take over its operations

Hanjin’s announcement comes as rumors mount that the carrier is trying to renegotiate with its ship charterers, like its compatriot Hyundai Merchant Marine, which is trying to do the same.

Hanjin suspended trading of its stock, which will resume April 25, ahead of the announcement.

The company had not been pursuing charter renegotiations and at least two of Hanjin Shipping’s tonnage providers have said payments are being received and remain on time.

Hanjin Shipping in 2015 had an operating profit of 36.9 billion South Korean won ($31.38 million), up from 24 billion South Korean won in 2014. After including revenue from non-core businesses and asset sales, the company achieved a net profit of 3 billion South Korean won in 2015 compared with a 423 billion South Korean won loss in 2014. Because of the weakness in the underlying fundamentals of the container trade, analysts are expecting the company to post a loss for 2016.

Hanjin had a working capital deficit of 3.08 billion South Korean won as current liabilities exceeded assets, and the company’s gearing level of 3.16:1 is also high.

Hanjin in 2014 sold its liquefied natural gas and dedicated dry bulk divisions to the South Korean private equity firm Hahn & Company, which created H-Line Shipping to manage those assets. The firm in March sold its last very-large crude carrier and its London office to raise more money.

Hanjin’s and HMM’s financial problems prompted the South Korean government to ask both to contemplate a merger in 2015, but neither company took to the idea and speculation on such a move has since faded.

HMM’s troubles seem to be reaching some sort of climax as its main creditor, also the KDB, is expected to swap the company’s debt for equity. Like Hanjin, HMM has tried to save itself by unloading assets, and the company has raised more than 3.5 trillion South Korean won through those efforts.

However, both companies must cope with an incredibly depressed container shipping market that will continue to make their lives difficult.

“With the delivery of mega-ships, global shipping companies will have to secure volume by aggressively lowering rates to achieve unit cost competitiveness,” True Friend Korea Investment & Securities analyst Yun Hee-do said. “Amid these conditions, it should be difficult for other players that are not increasing capacity to raise rates.”

Neither Hanjin nor HMM operate any mega-ships, and they haven’t placed orders for such ships because of their financial struggles.