Hanjin Shipping Co., South Korea’s largest container carrier, is expected to undergo a creditor-led restructuring program on Wednesday, about a week after the cash-strapped company was requested by creditors to come up with a more detailed plan to reform its debt. Hanjin Shipping is known to have included more drastic measures such as wage cuts and asset sales in its voluntary restructuring proposal to creditors, but there is a bumpy road ahead for the struggling shipping company to keep its business afloat.

According to multiple industry sources, seven creditor banks of Hanjin Shipping - including the Korea Development Bank (KDB), Export-Import Bank of Korea, KEB Hana Bank, and KB Kookmin Bank - are expected to begin the process of a conditional workout program for the financially-squeezed shipping company no later than Wednesday. An official from the creditor group who asked to be unnamed said that lenders decided to approve the revamp program for Hanjin Shipping after the company came up with a relatively more detailed plan than its previous one, such as measures to secure working capital and negotiations with ship owners to lower chartering fees. The official added “Everything hinges on the results of the company’s negotiations with ship owners on bringing down chartering costs.”

Hanjin Shipping is soon expected to launch talks with ship owners on moderating ship renting fees and request non-banking creditors this month to reschedule its loan obligations.

Unlike its smaller rival Hyundai Merchant Marine Co. that is also under huge debt, Hanjin Shipping is in its early stage in the talks to lower chartering fees. Negotiations are expected to be led by Byeon Yang-ho, former head of Vogo Fund, a private equity fund, who was also in charge of chartering fee negotiations for Hyundai Merchant Marine. Byeon will lead the talks with lawyer Mark Walker.

Meanwhile, with regard to Hyundai Merchant Marine’s progress in its chartering fee negotiations, Financial Services Commission Chairman Yim Jong-yong said that although mid-May is the rough deadline for the negotiations, the actual result will come out at around end of June after adjusting details from the talks. Yim said that as of now, the possibility of Hyundai Merchant Marine getting what it wants from the negotiations is half and half.

When it comes to Hanjin Shipping, Yim raised more concerns, noting that the number of chartered ships out of its total number of containers in operations is high and that it has a considerable amount of overseas debt, making negotiations with ship owners more difficult than that for Hyundai Merchant Marine.

The South Korean government and creditors see that Hanjin Shipping has about three months to negotiate its chartering costs as its 190 billion won ($166.3 million) worth corporate bonds are expected to mature in the end of June and it has piled up commercial debt such as unpaid chartering fees and harbor usage fees.

The government is known to have included in its scenario the possibility of both Hanjin Shipping and Hyundai Merchant Marine being handed over for court receivership, although this would not necessarily mean winding up the companies. If a shipping company goes under court receivership, however, it will be excluded from the global shipping alliance, which would incur more operating losses, raising the possibility of closing down.

The government, meanwhile, is known to have drawn up a contingency plan in case the two companies are brought under court receivership. Deputy Prime Minister Yoo Il-ho has mentioned several times during an interview with Korea Broadcasting Station on Sunday that when it comes to restructuring the country’s shipping industry, creditors will be primary decision-makers but if container carriers’ negotiations with ship owners on moderating chartering fees fall through, they might be handed over for court receivership. With regard to voluntary efforts made by the shipping companies’ management group, Yoo said that they have made huge investments and thus they need to make more efforts to make up for the losses. He said that such efforts would involve owners seeing losses as well but after all, they should be responsible to some extent since it is the result of mismanagement. The deputy prime minister said that if voluntary efforts aren’t enough in turning around the company, creditors should lead them to go through the process of selling what’s needed and saving what’s necessary.

By Yoon Jin-ho, Kim Hyo-sung

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