The Phaserl


“Zombie Apocalypse”: The Hanjin Bailout that Didn’t Happen

by Wolf Richter, Wolf Street:

“Shatters the complacency” that TBTF carriers “are immune to failure”

South Korea’s Hanjin Shipping Co., the world’s seventh largest container carrier and a unit of Hanjin Group, Korea’s 10th-largest conglomerate that also controls Korean Air Lines, has been in financial trouble for a long time. Bankruptcy or rather a government bailout, not only for Hanjin, but also of the second largest Korean carrier, Hyundai Merchant Marine (HMM), has been bandied about for as long.

HMM was restructured, with creditors taking a big hit, including its main creditor, the state-owned Korean Development Bank which in the process became HMM’s largest shareholder, which boils down to a taxpayer bailout. Pending regulatory approval, the restructured HMM will join 2M carriers Maersk Line and MSC in a new alliance next April.

But Hanjin’s debt restructuring and bailout efforts collapsed – to the great surprise of the industry, which, having seen the bailouts and other maneuvers of 2009, figured that the major container carriers were too big to fail due to their role in the global economy and that they’d always get bailed out.

On Wednesday, Hanjin filed for rehabilitation in Seoul (similar to a US chapter 11 bankruptcy) after its creditors – the largest being the Korea Development Bank – which had tried to keep the carrier afloat for years, threw in the towel and cut off a financial lifeline.

The court has given Hanjin until November 25 to submit a rehabilitation plan. In reality, the court is simply granting the company some time for an orderly liquidation. The Korean government has already called on HMM to buy Hanjin’s healthy assets – thus choosing the survivor.

Hanjin’s liquidation would be by far the largest container-carrier failure in history. The two carriers handle the majority of South Korea’s exports, which account for about half of its GDP! So the fact that the Korean government let TBTF Hanjin fail is a sea change.

The filing created instant chaos at ports and for shippers worldwide. Creditors seized Hanjin ships. Ports denied them access. Container terminal operators refused to handle the cargo. Goods got stranded. Supply chains froze up. Crews were said to be leaving ships because they’re not getting paid.

Hanjin has numerous service partners with slots on Hanjin ships, and they’re now tangled up in the chaos, particularly the CKYHE Alliance (Cosco, K Line, Yang Ming and Evergreen). Drewry Maritime Research:

[S]uch is the intertwined nature of the industry whereby carriers swap space freely in order to expand their network offering that many more lines will be affected. Many shippers will be unaware when they book with carrier Y that their container will actually have been moved on a Hanjin-operated vessel.

On Friday, Hanjin filed for Chapter 15 bankruptcy protection in the US. A hearing is scheduled for Tuesday. If recognized by the court, the filing will prevent creditors in the US from seizing Hanjin’s ships or commencing other legal actions for the duration of the Korean bankruptcy proceedings.

On Monday, South Korea’s Financial Supervisory Commission, which is trying to bring some order to this chaos, said that plans are underway to file for court protection in 10 countries this week and in dozens of other countries soon, in order to prevent Hanjin’s ships and other assets from being seized by creditors. By now, the number of stranded ships has risen to 79 (61 container ships and 18 bulk carriers), nearly two-thirds of Hanjin’s 128 operating ships.

The head of the Commission, Yim Jong-yong, admonished the majority owners: “Aside from the government’s efforts, Hanjin Group and its affiliates should be more aggressive in coping with this chaotic situation. The shipping line is their company.”

The Commission has set up a task force to limit the impact of Hanjin’s collapse on Korea’s export-dominated economy. On Monday, it said that bailouts from a supplementary budget are being planned for the many Korean contractors of Hanjin to keep them afloat.

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