Deliberating the Hanjin Debacle

Jan. 8 was a jaw-dropping date when the government, the financial and investment community, and the labor sector learned about the painful announcement made by Hanjin Heavy Industries and Construction Corp. Philippines that it was filing for bankruptcy before a Philippine Court due to lingering liquidity problems.
Created in 2006 and based in Subic Bay which hosted the biggest US naval Pacific base outside the mainland, Hanjin has a shipyard that builds container ships and a variety of commercial vessels used for oil, gas and other heavy industries. It was established in 2006 as a subsidiary of South Korean shipbuilder Hanjin Heavy Industries and has produced more than a hundred vessels for its different global customers.
Considering Hanjin’s solid track record of building huge vessels, its impending rehabilitation or liquidation came as a big and shocking surprise. With the data coming in, it appears that Hanjin has defaulted on its loans ( some even without collateral!) worth about $400 million. Major banks include BDO Unibank, RCBC, LANDBANK, BPI and Metrobank. These are institutions which ordinary citizens transact with on a daily basis.
RESCUE OPTIONS
Reactions from different sectors were loud and clear but all with a unifying theme: CONCERN. Government immediately took a stand with President Duterte and Defense Secretary Delfin Lorenzana mentioning a possible government takeover by making the latter a possible investor within the context of a rehabilitation plan which will be issued by the Olongapo Court, having jurisdiction over the matter.
The DTI also chimed in by saying that their department will link with potential investors to help as ordered by the Court. On the other hand, happy to note that the banks have agreed not to step on one another’s toes in the name of competition when it signified its unified resolve to help the embattled company rather than engage in a rat race to seize its assets.
EXTERNAL IMPACT
The Bangko Sentral did its part by assuring us that the effect of the Hanjin debacle to the banking system is negligible because the exposure of the aforementioned banks is only 0.24% of all loans in the system.
While there is deep concern about the overall economic effects of the bankruptcy of Hanjin, one must not forget the social and monetary costs to the employees of the shipyard — about 30,000 of them. Around 7,000 or more have been laid off so far. Their interests — wages and benefits — should be considered in the judicial process of rehabilitation. A lot of fierce debates as to who shall be preferred in the long line of payments are happening, but surely, social justice principles shall guide the court in its decision.
LEGAL BLUEPRINT TO HANDLE OBLIGATIONS
By now, the focus should be with rehabilitation proceedings under the Financial Rehabilitation and Insolvency Law (FRIA). The policy of this law is to encourage the debtors and creditors to resolve and adjust competing claims and property rights. Fairness, timeliness, transparency, and effectivity of the rehabilitation or the liquidation shall be the order of the day. If rehabilitation is not achievable, then a rational and orderly liquidation of the assets of Hanjin and the settlement of their obligations shall be done. This is for the ultimate protection of all of its stakeholders. As the process is summary and non-adversarial, ease in commercial discussions shall be facilitated and decision making, hopefully quicker.
The efficacy of this judicial remedy under the FRIA will be put to a test. Considering the high stakes, it is greatly recommended that we monitor the procedure very closely and critically. If the public maintains its interest, then we can be fairly assured of a good, reasonable and commercially astute result.
 
Ariel F. Nepomuceno is a management consultant on strategy and investment.