Why is South Korea’s biggest shipping company in receivership?

South Korea's biggest shipping group Hanjin is set to enter receivership after its board unanimously agreed to make a court filing at a recent meeting.
 

The main reason for the receivership is down to Hanjin’s creditors refusing to provide further funding to bail out the firm’s debts. The company was not able to persuade its lenders to reschedule the debt under a new restructuring plan.

Hanjin shares are suspended in Seoul after plunging as much as 29 percent on Tuesday.
 

While Hanjin is the world's seventh-largest container line, it has been unprofitable for four of the last five years. South Korea's shipping and shipbuilding industry has borne the brunt of the downturn in global trade. A decrease in orders across the board has led to overcapacity and freight rate depression, as well as an increase in debts.

"Korean shipping companies have suffered large losses largely because charter rates on leased vessels were fixed in 2010 at a high level while actual shipping rates have fallen," Nomura analyst Young Sun Kwon said.
 

The South Korean government is now looking to undertake a reorganisation of the entire industry, which will require major retrenchments that could result in the loss of tens of thousands of jobs.

Read the August issue of Business Review Australia & Asia.

Follow @BizRevAsia and @MrNLon on Twitter.

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SOURCE: [BBC]

<a href="http://www.shutterstock.com/gallery-2263082p1.html?cr=00&pl=edit-00">Sheila Fitzgerald</a> / <a href="http://www.shutterstock.com/editorial?cr=00&pl=edit-00">Shutterstock.com</a> 

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