Hyundai Merchant Marine will be bred as Korea’s main flag carrier at sea under careful guidance and support from the government and state-led creditors after it assumes core assets from currently the country’s largest Hanjin Shipping.

Given the gravity of the case, the bankruptcy court will likely decide the fate of Hanjin Shipping within the next week on whether to liquidate the company or freeze assets for give it time to normalize.

Hanjin Shipping is set for liquidation as authorities have indicated that Hyundai Merchant Marine, whose management fell under the state-run Korea Development Bank (KDB) after debt-to-equity rescue, will take over competitive vessels and manpower from Hanjin Shipping before it goes under. The process would happen after the government and KDB chooses a new chief executive for Hyundai Merchant Marine.

The biggest asset held by Hanjin Shipping is its cargo fleet. It owns 60 vessels apart from a separate fleet chartered from foreign ship owners. The vessels are worth 4.56 trillion won ($4.1 billion) in total based on book value as of the first half of 2016, accounting for a majority value of its tangible assets. But they were purchased on shipping finance, which means that proceeds from the sales would have to be spent on paying the debt.

A senior KDB official said the state lender would negotiate with foreign ship owners that charter ships to Hanjin to lease them to Hyundai Merchant Marine after they are retrieved from the court.

The vessels whose lease fees have been cut back up to 27 percent from negotiations with Hanjin Shipping will be targeted, he said.

Jeong Eun-bo, vice chairman of the Financial Services Commission, said that Hyundai Merchant Marine will assume ships Hanjin Shipping owns after negotiating terms with the financing lenders. “The scale and timing all depend on the talks with them,” he said.

Hanjin Shipping won a grace period of three years and six months for 470 billion won lending for the ships it acquired. Funding to assume the ships and employees from Hanjin Shipping could come from additional debt-to-equity swap or capital increase in Hyundai Merchant Marine.

According to Alphaliner, a maritime data provider, Hanjin Shipping is the world’s seventh-largest container carrier with 98 containerships, which account for 2.95 percent of global cargo fleet share. Hyundai Merchant Marine will replace Hanjin by moving up from its 14th rank on global scale with 60 containerships (2.1 percent share) when adding 30 to 40 Hanjin ships to its fleet.

The government and KDB also value Hanjin Shipping’s strong operation network with overseas shippers. Industry estimate shows that a shipping company would need to spend about 1.5 trillion won to establish lucrative deep-sea route. Hanjin Shipping is active on 70 routes. The company has 23 overseas subsidiaries and 100 business branches. Authorities believe that combining the operations and network of Hanjin Shipping and Hyundai Merchant Marine would help reduce overall cost and create business synergy.

By Kim Jung-hwan and Chung Seok-woo

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