It’s a tale of two corporate responses: Hanjin Shipping’s descent into receivership and Hyundai Merchant Marine’s escape from bankruptcy.

When it became apparent in late 2015 that South Korea’s two largest shipping lines, Hanjin Shipping and Hyundai Merchant Marine (HMM), were struggling with huge debts and weak earnings, HMM was widely expected to go under, a victim of the prolonged shipping market slip. In October 2015, Hanjin Shipping’s revelation that President Park Geun-hye’s government had asked it to review a merger with HMM gave further indications that the latter would not survive.

Moreover, when a line-up for THE Alliance was unveiled on 13 May this year, HMM was noticeably absent, while Hanjin was in the grouping that also listed Mitsui OSK Lines, NYK Line, ‘K’ Line, Hapag-Lloyd, and Yang Ming. HMM admitted that its highly publicised business normalisation efforts had precluded it from being included in THE Alliance’s initial roster but stressed that it expected to join the grouping when it completed restructuring. Still, its omission fuelled speculation that HMM could not survive, as it had to be part of a shipping alliance and cut charter costs to enjoy continued support from its banks. However, by September 2016 HMM had staged a remarkable escape from bankruptcy, while Hanjin Shipping entered receivership, causing logistical chaos as the world’s seventh-largest liner operator tried to prevent its creditors from arresting Hanjin ships.

Speaking to IHS Fairplay on condition of anonymity, an executive from Zodiac Maritime, which has ships on lease to both companies, said HMM handled its charter renegotiations better. “HMM continued to honour its obligations even when it was in the midst of discussions with us,” the source explained. “On the other hand, Hanjin Shipping began falling behind on payments at the start of summer. Subsequently, Hanjin Shipping told us it would stop paying until a deal was worked out. That didn’t go down well with the tonnage providers.”

When contacted about these comments, Hanjin declined official reaction, but a source inside the company confirmed that the line had defaulted on charter payments in early summer. “At the time we fell behind on charter payments, we were beginning negotiations with the tonnage providers, and we told them that we would settle the arrears once the charter rates were adjusted,” the insider explained. Seaspan Corporation CEO Gerry Wang’s public declarations that he would not agree to lower Hanjin’s charter rates only compounded the carrier’s predicament. The Zodiac source said, “All the tonnage providers must be on the same wavelength in order for the restructuring to be successful. If Gerry Wang insisted he wouldn’t renegotiate, why should we?”

On 13 June, HMM said it had secured a 20% discount off box ship charters and a 25% reduction in bulker charters. The company’s tonnage providers include Zodiac, Eastern Pacific Shipping, Navios Maritime, and Capital Ship Management Corporation. HMM also successfully rescheduled repayments to bond holders and entered into partial debt-for-equity swaps with them. With both companies’ banks making it clear that no cash injections would be imminent, HMM and Hanjin had to sell assets to boost liquidity.

In this respect, the Zodiac executive observed that HMM’s parent, Hyundai Group, was wealthier than Hanjin’s, with subsidiaries such as tour operator Hyundai Asan, financial units Hyundai Securities, Hyundai Savings Bank, and Hyundai Asset Management, as well as Hyundai Logistics on top of vessels and box terminals in South Korea and overseas. Selling all or parts of these subsidiaries – as well as HMM’s dedicated bulk shipping contracts – raised more than USD1 billion. By contrast, Hanjin Shipping raised more than USD250 million from selling ships, overseas terminals and its London office. The amount that HMM’s parent raised gave the company breathing space over the next two years, but Hanjin Shipping’s efforts fell far short of its banks’ expectations.

South Korea’s Financial Services Commission (FSC) assessed that Hanjin Shipping would need at least USD1 billion to survive the next two years, while the liner operator’s main shareholder (Korean Air Lines), chairman Cho Yang-ho and other Hanjin affiliates offered to fork out only about USD450 million. Hanjin Shipping’s local banks, led by state policy lender Korea Development Bank (KDB), withdrew support, forcing the company to seek court protection. Both HMM and Hanjin had earlier sold their dedicated bulk shipping contracts and liquefied natural gas businesses to South Korean private equity investment firms Hahn & Co and IMM, but again it was HMM’s parent that was richer in assets, the Zodiac source noted.

Having been refused entry into THE Alliance, HMM reached out to the 2M alliance of Maersk Line and Mediterranean Shipping Co. On 14 July, HMM signed a memorandum of understanding to be part of that grouping, beginning in April 2017. HMM’s banks, led by KDB, reacted by executing a debt-for-equity swap in which they took a 40% in stake HMM. This completed HMM’s remarkable escape from bankruptcy. Its debt ratio shrank from 5,307.3% on 31 March to 200% as IHS Fairplay went to press, enabling HMM to tap a fund set up by the state policy banks to invest in ultra-large container ships. Its banks have replaced HMM’s top management and are leading the reorganisation, which is expected to end in June 2021.

But meanwhile, Hanjin Shipping faces an uncertain future. As it scrambled to get South Korean proceedings recognised in courts worldwide, it was scheduled to declare its assets and liabilities and to meet its creditors. By 25 November, Hanjin is obliged to submit a rehabilitation plan that creditors must approve before court-led restructuring can take place. Hanjin, which is returning chartered-in tonnage, is not allowed to spend money or sell assets without the court’s approval. While the Wall Street Journal reported that Hanjin Shipping could reposition itself as an intra-Asia liner operator, a company spokesman declined comment. A merger between HMM and Hanjin Shipping could be possible, as the FSC has asked HMM to acquire its rival’s “valuable assets”. A spokesman for HMM told IHS Fairplay that the company would discuss with the FSC which assets it could acquire, but Hanjin Shipping declined official comment. Nevertheless, the Hanjin insider told IHS Fairplay: “We have been continuously selling whatever is valuable for the past couple of months. We’re very curious as to what is seen as ‘valuable’ among the assets that are left.”