MANILA -- The Philippines' largest shipyard is set to close with the loss of some 3,500 jobs as financial troubles deepen around its South Korean owner, Hanjin Heavy Industries and Construction.
The decision to halt operations will complicate efforts by the Philippine government and Hanjin to find an acceptable white knight to rescue the Subic Bay shipyard, which sits at the strategically sensitive entrance to the South China Sea, where Beijing has steadily been building up a military presence.
"It will be difficult to find an investor if you stop building ships," said Stefani Sano, the outgoing court-appointed administrator of the rehabilitation of HHIC-Phil, Hanjin's Philippine unit.
HHIC-Phil filed for bankruptcy protection in January after failing to repay $1.3 billion loans in what is regarded as the country's largest-ever corporate default.
Government officials told Nikkei Asian Review there were still potential bidders in the wings, including interest from North American, German, Turkish, and other Asian companies.
Chinese bidders have also expressed interest, according to a local trade official, but this has sparked a public backlash amid concerns over national security.
Government agencies have been mobilized to try to save a facility that employed over 30,000 people at its peak, with tens of thousands more in the local economy depending indirectly on its operation for their livelihoods.
The shipyard's closure would be a blow to President Rodrigo Duterte's job-creation efforts and to the Philippines' reputation as the fifth-largest shipbuilding economy in the world. The government could now come under pressure to step in.
The Department of National Defense has ordered the Philippine Navy "to study which portion of shipyard we can assist or takeover." The government would first let the private sector try to reach a final agreement, "but we will be ready just in case [they don't]," said Navy Spokesperson Commander Jonathan Zata.
For parent Hanjin, a sale is crucial to help it bring down debt. On Wednesday, its shares were suspended as the company revealed its net worth had plunged into negative territory. The state-owned Korea Development Bank indicated it would be ready to step in with a debt for equity swap to help stem the crisis.
Officials estimate that the Philippine shipyard needs some $12 million a month to continue operating.
Sano told Nikkei that he had drafted a plan that would have allowed Hanjin to complete the six vessels still on its books while searching for an investor. "I was already talking to some financiers, even banks," Sano said.
But Sano, who was nominated by Hanjin, resigned last week after creditors bombarded the court with petitions to remove him, he said. "I just resigned to avoid further delays," he added. A new rehabilitation plan would have to be drawn up by the new creditor approved receiver, which would take time.
Without a viable plan, some 3,500 workers will be laid off, starting Friday, according to Efren Vinluan, president of Hanjin Workers Association, the de facto union. "The company will then re-contract some employees for facility maintenance," Vinluan said.
Despite the difficulties in securing an investor, Subic Bay Metropolitan Authority Chairwoman Wilma Eisma said on Thursday she still believed the shipyard would find a white knight.
"We would have wanted a white knight yesterday, but I am still confident we will find one," Eisma told Nikkei on Thursday. Two companies -- a North American and a non-Chinese Asian one -- had begun due diligence, Eisma added.
At least two Chinese companies have expressed interest in the facility, but the Philippine defense establishment has cautioned the government about giving the Chinese access to a vital strategic asset like Subic Bay, a former U.S. naval base and a critical asset for American troops during World War II and the Cold War.
The bay opens to the South China Sea, where Beijing has built military facilities on artificial islands despite competing territorial claims from the Philippines, Brunei, Malaysia and Vietnam.
HHIC-Phil at its peak ranked as one of the world's top 10 shipyards. South Korea's Hanjin has invested $2.3 billion since taking over the site in 2006, and has delivered 123 ships by end 2018.
Nikkei staff writer Kim Jaewon contributed to this report.