Borrowed time comes to an end as Hanjin Shipping files for court receivership

Hanjin Shipping today became the most high profile casualty of the container shipping downturn with management opting for court receivership after its creditors had decided to end support for the ailing line.

Compatriot line Hyundai Merchant Marine (HMM) is now likely to buy Hanjin’s “good” assets, South Korea’s financial regulator said today. HMM’s shares soared in trading, up 24% by the early afternoon.

Meanwhile, the Hanjin Rome, a 3,700 teu ship belonging to the beleaguered line, was arrested in Singapore by a creditor yesterday while another ship, Hanjin Sooho, was denied entry to the port of Shanghai.

Alphaliner states Hanjin’s bankruptcy is the biggest ever in container shipping history. The company is the seventh largest liner in the world, with 98 vessels totalling 609,500 teu as well as 44 bulkers and tankers. It charters in 61 ships. Among tonnage providers scrambling today to find out what will happen to their contracts with the Korean line are Conti, Ciner, Danaos, Pacific International Lines, Rickmers and Seaspan.

Drewry Maritime Equity Research commented today: “The debt burden was just staggering and it doesn’t surprise us that [lead creditor Korea Development Bank] effectively decided to pull the plug. As of end 2Q16, Hanjin had a total debt of $4.2 bn and net gearing ratio of 8.7x, and cash at hand being $156.5m.”

The company’s corporate bonds worth about KRW1.1trn won ($982.3m) are expected to turn into worthless scraps of paper.

Commenting on the news, Lars Jensen from Copenhagen’s SeaIntelligence Consulting mused yesterday on the ramifications for THE Alliance, a new container grouping set to start operations next April.

“This will potentially have a spill-over effect on the members of THE Alliance,” Jensen wrote in a note today. “Since the announcement of THE Alliance, they have seen Hyundai shift to the 2M alliance and in worst case they might also lose Hanjin. The loss of both Korean carriers will then reduce the size of THE Alliance by more than 20% before it is even launched. As the industry is all about scale, it must be of concern for the members that their alliance will the have reduced their size ratio versus Ocean Alliance from 84% at time of announcement to now potentially only 64%.”

Other high profile Korean shipping companies that have gone under in recent years – Pan Ocean and Korea Line – have been auctioned with Korean conglomerates always winning the auction. HMM picking over the Hanjin carcass is very much the likely outcome in the coming months.

SeaIntel’s Jensen reckoned today the demise of Hanjin could be good for those in other alliances.

“For carriers not relying operationally on Hanjin, this is a significant opportunity,” Jensen wrote today. “Shippers who are worried about the fallout might seek safe harbour with the other alliances. If this becomes a material movement, the other alliances will see full ships and we may well see a sudden and sharp rise in spotrates on the key trades.”