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2 Chinese firms eye Hanjin

Cash flow problem presents opportunity for investors to come in

Two Chinese shipbuilding firms are interested to take over the Philippine business of the Hanjin Group of South Korea, a government official said, as the Duterte administration steps in to help save the troubled investor in Subic.

Drowning in debt, Hanjin Heavy Industries and Construction Corp. Philippines has asked the government for help in search of an investor who would take over the business and save the troubled shipbuilder.

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This was disclosed by Ceferino Rodolfo, managing head of the Board of Investments, to reporters on the sidelines of a press conference on Friday.

Over the past few days, he said he had received queries on the state of Hanjin Philippines after the company declared bankruptcy earlier this week— triggering the biggest corporate default in local history.

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He said two Chinese shipbuilding firms—one of which is state-owned were interested to take over Hanjin’s operations in the Philippines.

Officials of one of the two firms will come this month, while representatives of the other will take a look at the situation in February, he said. Further details, such as their names, were not disclosed. He did say, however, that one of them was one of the leading shipbuilding firms in China.

To take over, he said a company only had to pay off the company’s local debts, which amounted to $400 million. However, there were reports that Hanjin-Philippines also owed about $900 million to creditors back in South Korea.

The company, considered the largest investor in Subic, sought for rehabilitation and protection from creditors through a filing in a local court earlier this week.

The financial state of the company has sunk so low that the takeover price as of Thursday was now six times smaller than what it was a year ago, back when another investor was still interested, Rodolfo said.

“They asked for help in looking for an investor,” he said, noting that he went to Subic to look into the issue on Thursday.

“There’s an opportunity now with what happened to Hanjin. So we are linking the investors with them,” he added.

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The Inquirer found out that the five local banks with exposure in Hanjin have decided to take control of the company in the meantime, agreeing that not one of them should go ahead and seize collateral before the other creditors.

These banks are Rizal Commercial Banking Corp.; Land Bank of the Philippines; Metropolitan Bank and Trust Co.; Bank of the Philippine Islands, and Banco de Oro Universal Bank.

How the search for a “white knight” will affect the banks’ plans remains to be seen. Nevertheless, the company needs to regain its cash flow given its backlog of orders, wherein a number of big ships still need to be made.

“Pay the debt and you can take over the operation. You probably need $12 million in working capital a month, assuming you make 6 to 8 vessels per year,” Rodolfo said.

Apart from helping look for an investor, Rodolfo said the government was also helping workers of Hanjin—thousands of whom have lost their jobs in December—look for other sources of income.

According to a statement from Subic Bay Metropolitan Authority (SBMA), the company has invested $2.3 billion in the shipyard facility.

It has manufactured some of the world’s biggest cargo and container ships, bulk carriers, liquefied petroleum gas carriers, very large crude oil carriers (VLCC) and very large ore carriers (VLOC).

Citing company records, SBMA said Hanjin has delivered since 2008 a total of 123 vessels to valued clients across the globe, thus cementing its foothold in the highly competitive shipbuilding market.

The numbers show the importance of the company in the shipbuilding industry. The Philippines has been the fourth largest ship builder in the world based on gross tonnage since 2010, the Department of Trade and Industry (DTI) said in a previous policy note.

Although domestic firms account for the biggest share of the industry based on the number of yards, the two largest foreign-owned firms—Hanjin and Tsuneishi in Cebu—account for nearly all exports, 75 percent of employment and 97 percent of revenue, DTI said.

“We’ve already seen that we are actually capable in shipbuilding. We see this as a cash flow problem specific to a company. So this really presents an opportunity for other investors to come in,” Rodolfo said.

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TAGS: Chinese shipbuilding firms, Hanjin Group of South Korea
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