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South Korea plans aid for shipbuilder hurt by Philippine yard

Another industry rescue likely to be criticized by China and Japan

A ship being constructed at Hanjin Heavy Industries' Subic shipyard in the Philippines. (Photo courtesy of HHIC Philippines)  

SEOUL -- South Korean midsize shipbuilder Hanjin Heavy Industries and Construction said Wednesday its net worth had plunged into negative territory last year after the collapse of a Philippine unit, as the state-run Korea Development Bank stood ready to step in with financial support.

The KDB, a major creditor to Hanjin Heavy, said it would provide financial assistance to help keep the shipbuilder afloat. There have been complaints that a bailout by a state financial institution violates international trade rules, and the move could draw criticism from rival shipbuilding countries like China and Japan.

In a disclosure to the Korea Exchange, Hanjin Heavy said its group debts exceeded assets for an undisclosed amount in 2018. It had booked losses from asset revaluations and growing debt provisions stemming from the filing for court-led rehabilitation by Hanjin Heavy Industries and Construction Philippines based in Subic Bay.

The Subic shipyard, established in 2006, was once among the world's top 10 by shipbuilding order value, according to sources. But market conditions soured in recent years, and the site's fixed costs became a strain, sustaining operating losses of 233.5 billion won ($208 million) in 2017, and of 60.1 billion won for January-September 2018.

Hanjin Heavy has guaranteed more than $400 million in debt owed by the Subic shipyard to Philippine lenders. The South Korean company aims to sell off its Subic operations and assets in order to lighten the debt load, and Chinese shipbuilders have reportedly expressed interest in buying.

On Wednesday, the KDB said it would negotiate with Philippine financial institutions in support of Hanjin's debt-reduction effort. The Korean state bank plans to swap some of its bonds in the shipbuilder for equity to help rebuild Hanjin's net worth.

The bailout of a stumbling South Korean shipbuilder raises parallels to the case of Daewoo Shipbuilding and Marine Engineering, which received 12 trillion won in financial support from 2015 to 2017 from rescuers including the KDB.

Daewoo, now in a tentative deal to be acquired by Hyundai Heavy Industries, later staged an earnings recovery. But its rescue has been criticized by overseas shipbuilders, who believe keeping companies on life support that ought to bow out is slowing down the market's recovery.

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