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Philippine Navy looks to join rescue bid for Subic shipyard

Admiral prefers South Korean or US bidders to preserve strategic facility

The Philippine Navy is interested in taking a stake in the Subic Bay shipyard of the Hanjin group. (Photo courtesy of Subic Bay Metropolitan Authority)

MANILA -- The Philippine Navy wants to join South Korean or U.S. companies in a rescue bid for the country's largest shipyard in Subic Bay, as it seeks to preserve local shipbuilding and quell national security concerns after the facility's collapse in January.

Vice Adm. Robert Empedrad told Nikkei Asian Review in an interview that the navy is seeking a "small" stake in the local unit of South Korea's Hanjin Heavy Industries and Construction, which ceased full-scale operation last month after defaulting on debts totaling $1.3 billion.

"The navy will come in as a part owner if that is possible," he said. 

There were "strategic implications," to the ownership of Subic Bay that meant a purely foreign bid was less desirable, he added. "What's important is it should be a joint ownership between a Filipino company and a foreign company," Empedrad said.

Empedrad's comments follow a sharp backlash from the Philippine defense establishment after it emerged that two Chinese companies had expressed interest in the shipyard, once home to a major U.S. naval base. The Subic Bay facility is extremely sensitive, sitting at the entrance to the hotly-contested South China Sea. Rich in fish and other natural resources, Beijing's moves to increase its military presence in disputed areas of the South China Sea have sparked severe tensions with several countries including the Philippines.

Philippine Navy chief Vice Adm. Robert Empedrad wants the navy to have a role in the Hanjin shipyard rescue (Photo by Cliff Venzon)

Former Philippine navy chief Alexander Pama has warned against giving a Chinese operator access to the shipyard.

"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," Pama said in January.

China is also seeking other strategic investments in the Philippines, including a railway connecting Subic and Clark, a former U.S. air base.

Empedrad echoed those concerns, but declined to elaborate. Philippine President Rodrigo Duterte's administration has adopted a nonconfrontational approach toward Beijing in their South China Sea territorial dispute, looking to secure more investments from China.

But the vice admiral made clear his preferences for the future of Subic Bay's ownership. The Navy felt "[South] Korea is a good option," he said, "because they are building most of our ships." Hyundai Heavy Industries is constructing the navy's first missile-capable frigate.

A U.S. company would also be able to "support us," he said. 

HHIC-Phil's collapse and rehabilitation could also be the opportunity to lower the cost of shipbuilding, he said. The Philippine navy expects to order 25-30 ships over the next 10 years under a military upgrade program.

"If we are a part owner, we get the expertise and transfer of technology... to build our own ships," he said. "Our new capabilities will be built there at a much, much cheaper price, and the workforce will be Filipinos."

Empedrad said the navy wanted to ensure it had space in the 300-hectare shipyard to dock its deep-draft vessels.

Despite Empedrad's desire for local involvement, only foreign companies have so far expressed interest. Dutch shipbuilder Damen Group and an unidentified U.S. shipbuilder are already conducting due diligence in the shipyard, said Rosario Bernaldo, the receiver in charge of HHIC-Phil's corporate rehabilitation. Companies from Australia, China and South Korea also are interested, according to government officials.

Duterte was "very receptive" to the navy's proposal of having a role in the rescue of the Hanjin unit, Defense Secretary Delfin Lorenzana has said. But Finance Secretary Carlos Dominguez has said he would wait for private parties to reach a deal.

HHIC-Phil asked a local court for bankruptcy protection in January. Officials from the company and the local banks that hold $412 million in its debt -- on top of the $900 million held by South Korean creditors -- are in talks with potential white knights.

The Subic shipyard, established in 2006, had built 123 ships such as container vessels and oil tankers as of end-2018. It employed over 30,000 in its heyday.

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