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Duterte open to state-backed rescue of Hanjin's Philippine shipyard

Chinese interest in distressed Subic Bay facility raises security concerns

Philippine officials say Hanjin Heavy Industries and Construction's assets in the country are worth $1.2 to $1.3 billion.   © Reuters

MANILA -- Philippine President Rodrigo Duterte is willing to consider government involvement in a rescue of the country's biggest shipyard, whose future is in doubt after its South Korean owner put the local unit into bankruptcy protection last week, according to Defense Secretary Delfin Lorenzana.

Lorenzana told a Senate hearing on Wednesday that the president was "very receptive" to the idea of the state being a minority investor in a private sector-led rescue of the Hanjin Heavy Industries and Construction's Philippine shipyard, when he brought it up during a meeting on Tuesday.

The minister's comments come just days after it emerged that two Chinese companies had expressed interest in the world's fifth-largest shipyard. That interest sparked opposition in the Philippines, with former navy chief Alexander Pama warning that a Chinese takeover would be "a very significant national issue."

Beijing has been strengthening its military presence in the South China Sea, prompting tensions with Manila. China is also keen to enlarge its footprint around Subic with projects for liquefied natural gas and a railway.

"The ownership of Hanjin shipyard in Subic Bay will give the owners unlimited access to one of our most strategic geographic naval and maritime assets," Pama said in a Facebook post on Saturday. "Although it is a commercial shipyard, nothing can prevent the owners from making it into a de facto naval base and a maritime facility for other security purposes."

Until the early 1990s, Subic Bay was home to the largest U.S. naval base in the Pacific. The shipyard there is still one of the world's biggest, ranking in the global top five.

Duterte's interest in the yard comes as HHIC-Phil, the local unit of South Korea's Hanjin Heavy Industries and Construction, struggles to find investors to help avert closure of the facility, which has been hit by fierce competition in an industry suffering from overcapacity.

HHIC-Phil defaulted on $400 million in bank loans last week, in what appears to be the country's biggest corporate default. Those debts are in addition to the $900 million the unit owed to South Korean creditors. The shipyard builds commercial vessels such as oil tankers and container ships.

Lorenzana said a government bailout would bolster the Philippines' naval capacity. "We see the possibility of having our own shipbuilding capacity in the Philippines, especially large ships like what is being built by Hanjin shipyard in Subic," Lorenzana told local media. He said the Philippine Navy could manage the shipyard.

Finance Secretary Carlos Dominguez said he had been briefed about the proposal but opted not to immediately offer an opinion pending additional information.

At least two local companies have said they are not interested in the shipyard. Tsuneishi Heavy Industries Cebu, a joint venture between the Japanese shipbuilder and the local Aboitiz Group, told the Nikkei Asian Review on Tuesday that it had "no plan in acquiring Hanjin's assets in the Philippines." Last week, tycoon Dennis Uy, who is involved in shipping and has close ties with Duterte, said he was "not interested" in the business.

The 300-hectare shipyard employed around 30,000 at its peak before falling to around 3,000 following the latest retrenchment in December, which led to 7,000 people losing their jobs.

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