South Korea government and creditor banks decided against injecting fresh funds to troubled Hanjin Shipping, placing the country’s biggest cargo carrier on path for insolvency and court-led program.

Extending new funds to keep the shipper in business would be like pouring money into “bottomless pit”, said Lee Dong-geol, president of state-run Korea Development Bank (KDB) after heading a creditors’ meeting, deciding on the fate of Hanjin Shipping based on latest due diligence and its self-rescue outline to save costs and raise immediate liquidity by selling off assets and issuing new shares to Hanjin Group companies.

Financial Services Commission Chairman Yim Jong-yong said the government has a plan to defend the country’s shipping industry even when Hanjin Shipping goes under court receivership.

He said the government was weighing “various options” but ruled out the possibility of merging Hanjin and Hyundai Merchant Marine, saying the option “is not possible at current condition.”

Hanjin needs at least 600 billion won to run its cargo fleet smoothly, but best can raise 400 billion won on its own.

Creditors believe the company would require from 1 trillion won to 1.7 trillion won depending on freight rates to run business till next year. They demanded the parent group to do more to help out the shipping unit, but group Chairman Cho Yang-ho and other companies claimed they can at most come up with 100 billion won at most.

“Creditors deem the group owner lack will (to do whatever to save the company,” Lee said, adding that creditors suspect much of new funding if extended could end up paying off overseas bondholders. Overdue commercial papers mostly owed to foreign investors amount to 650 billion won, and the company could use new funds to pay them off instead of trying to improve corporate value, he said.

The denial of new rescue fund has left the cash-strapped shipping company with little option but to head straight to court. Its stock trading was halted during the session on Tuesday after its shares plunged 24.2 percent to 1,240 won on the news.

By Kim Jung-hwan and Chung Seok-woo

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