Hanjin Shipping faces setback in debt relief efforts due to possible Q2 loss

Concerns are growing that Hanjin Shipping Co., South Korea’s largest container carrier suffering from debt woes, would report operating loss in the second quarter, which should be a big blow to its efforts to reduce ship charter fees and reschedule debts.

According to multiple sources from the shipping industry and financial circle on Wednesday, Hanjin Shipping is likely to post operating loss for the April-June period in the second quarter in a row following the first quarter when it reported 115.7 billion won ($105.5 million) worth of loss. The container carrier is slated to announce its second-quarter earnings later this week.

Sources noted that the consecutive quarterly loss suggested serious deterioration in Hanjin Shipping’s overall business conditions, considering that the shipping industry generally enters peak season starting May.

It would be the first time for Hanjin Shipping to post an operating loss in the second quarter in three years. After recording an operating profit of 79.5 billion won in the April-June period of 2012, the shipper fell into the red in the same period of the following year with 55.7 billion won losses. Hanjin Shipping managed to return to profits in the cited periods in 2014 and 2015, raising respective 23.9 billion won and 59.2 billion won worth of operating profit.

An unnamed official from the shipping industry said a plunge in freight rates between March and May has mainly led Hanjin Shipping to log losses in the second quarter. The official also noted that mounting debt and growing concerns over its business conditions has shooed away Hanjin Shipping’s current and potential clients, making it hard for the container carrier to at least maintain the certain cargo volume required to run the business.

After Hanjin Shipping made profits in June, there have been expectations that the shipping company would return to profits in the second quarter. But the losses in April and May were too big to prevent a quarterly operating loss.

The soon-to-be-announced second quarter operating loss is said to have already negatively affected Hanjin Shipping’s ongoing talks to secure liquidity. Worried about whether Hanjin Shipping would be able to gain back on its feet, some ship financing companies in negotiations with Hanjin Shipping for rescheduling of 500 billion won worth of debt maturing next year have reportedly decided to reclaim vessels instead of waiting for the company’s debt repayments.

A senior creditor official who asked to be unnamed said Hanjin Shipping’s second quarter earnings would be worse than expected, further deteriorating the company’s financial health. The company’s efforts to reschedule ship financing hit a big snag, which could reverse the direction of its debt restructuring talks, he added.

 



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