Amid a protracted slump in the global shipping industry, concerns are rising over the possibility that South Korea’s largest carrier Hanjin Shipping Co. facing a liquidity squeeze could undergo creditor-led restructuring.

According to multiple industry sources on Monday, creditors are considering pushing forward conditional workout arrangement with the debt-ridden shipping company, a similar deal made recently with cash-strapped Hyundai Merchant Marine Co.

An unnamed high-level official from Hanjin Shipping’s creditor group said on Monday the company’s charter costs are higher than operating costs, and it would be inevitable for it to be put under conditional workout arrangement like its industry rival Hyundai Merchant Marine if it fails to reach an agreement with ship owners on lowering chartering fees on its vessel fleet before its debts mature three months later. Korea’s two leading shipping companies Hyundai Merchant Marine and Hanjin Shipping are subject to conditional voluntary restructuring as they owe paybacks mostly to non-banking institutions.

A conditional voluntary workout is a restructuring program in which creditors, led by Korea Development Bank, defer debt payment under the condition that non-banking institutions that own corporate bonds agree to extend maturity, and ship owners agree to lower charter fees.

Hyundai Merchant Marine, which has gone into conditional voluntary arrangement with creditors last month, currently has overdue interest on corporate bonds that were due to be paid early this month. Hyundai Merchant Marine is negotiating with ship owners from the United Kingdom and Greece to cut charter rates with the goal of concluding the negotiation this month. If the company fails to moderate charter rates and extend maturity of corporate bonds before July, the creditor-led conditional voluntary program is expected to be automatically nullified. In such a case, it is most likely that Hyundai Merchant Marine will go under a court receivership.

Industry sources note that whether Hanjin Shipping would successfully lower chartering fees will hinge on the result of Hyundai Merchant Marine’s negotiations with ship owners. Another creditor official who asked to be unnamed warned the industry should prepare for the worst scenario that the country’s two biggest carriers would go under a court receivership.

After the two shipping companies are able to bring down charter fees and extend non-banking debts, the government and creditor group are expected to speed up the industry-wide restructuring by selling management rights or promoting mergers.

By Chung Seok-woo, Yoon Jin-ho

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