Amid growing possibility of South Korea’s Hanjin Shipping Co. heading for court receivership after creditor banks rejected the injection of fresh funds to salvage the troubled shipper, the company’s corporate bonds worth about 1.1 trillion won ($982.3 million) are expected to turn into worthless scraps of paper. There will be limited impact, however, on the local financial market.

According to Korea Securities Depository, as of Tuesday, Hanjin Shipping has about 1.1 trillion won worth outstanding bonds excluding perpetual papers. Of the total, about 421 billion won worth of bonds publicly trade while 696.8 billion won have been privately placed. Despite bonds becoming of worthless value with Hanjin Shipping being placed under court-led program, industry observers note that the impact on the overall market will be limited as most of the corporate bonds are held diversely by institutions than individuals. Only 20 percent of the bonds are known to be owned by retail investors.

An unnamed industry official said that roughly, about 500 million won worth of Hanjin Shipping’s corporate bonds are owned by institutions including National Credit Union Federation of Korea and MG Community Credit Cooperatives, and the amount isn’t large enough to take a hit on institutions.

Financial institutions, meanwhile, are expected to be exposed up to 1 trillion won worth risk but much of the amount has also been reflected already as irrecoverable debt. Financial institutions would see losses in their own financial reports but Hanjin Shipping heading to court receivership would not place further risk on financial institutions.

Industry observers note that financial institutions are exposed to about 1.02 trillion won worth of risk in total, with Korea Development Bank being exposed the most at 675.7 billion won, followed by KEB Hana Bank at 124.8 billion won, NH Nonghyup Bank at 86.7 billion won, and Woori Bank at 69.7 billion won.

KDB has already categorized Hanjin Shipping debt as “estimated loss” and has reserved full allowances. Woori Bank, KB Kookmin Bank, and NH Nonghyup Bank have placed Hanjin Shipping debt under “doubt loans” and have also reserved 90 percent or more allowances, reflecting risk beforehand. KEB Hana Bank has categorized Hanjin Shipping’s asset quality as “substandard” and would have to reflect 80 billion won to 90 billion won worth of allowance spending in its third quarter financial sheet.

An unnamed official from KEB Hana Bank said that it plans to pile up all of the necessary funds to deal Hanjin Shipping debt in the third quarter.

If Hanjin Shipping is able to survive the court-led program and get back on its feet, financial institutions that have reflected Hanjin Shipping debt as losses would be able to recover some part of the loans. Industry observers, however, note that there is little hope as the court is judging that the shipper’s liquidation value is higher than its going concern value.

By Ko Min-suh and Noh Seung-hwan

[ⓒ Pulse by Maeil Business News Korea & mk.co.kr, All rights reserved]