Hahn & Co agrees $380m Hanjin deal
Of the four leading Korean dry bulk carriers, Hanjin Shipping and Hyundai Merchant Marine are raising capital through asset sales and restructurings, while STX Pan Ocean and Korea Line have already filed for bankruptcy.
Hahn & Co. tried to buy Korea Line this time last year for KRW1.1 trillion ($1 billion) through a bankruptcy court process. After being selected as the preferred bidder, the private equity firm withdrew due to discomfort with certain contingent liabilities it would have assumed as part of the deal.
Hahn & Co. returned to the table in late December, agreeing to buy certain bulk and liquefied natural gas (LNG) shipping businesses from Hanjin, Korea's leading carrier and the eighth-largest globally by fleet size.
According to Scott Hahn, the private equity firm's CEO, the assets will be spun out into a joint venture, with Hahn & Co. holding 76% and Hanjin 24%.
The private equity firm will pay KRW400 billion for its share and assume approximately KRW1.4 trillion in debt, which puts the enterprise value of the deal at around KRW1.95 trillion. Definitive documentation has been signed and a formal close is pending.
While not in as dire straits as Korea Line, Hanjin has posted losses for each of the past 10 quarters and must repay KRW1.25 trillion in debt next year and KRW1.08 trillion in 2015. The company announced plans last year to raise KRW1.5 trillion through divestments of container terminals and vessels and then tap creditors for an additional KRW444 billion in loans.
The sale to Hahn & Co. should reduce Hanjin's debt-to equity ratio to 673% from 987% as of September 2013.
The global shipping industry has struggled ever since the global financial crisis when many players overextended themselves during the boom years, leading to overcapacity. Overall fleet size increased by more than 75% between 2008 and 2013, while demand only grew 40%.
However, Hahn remains upbeat on the prospects for Hanjin - much as he was for Korea Line - due to Korea's continued need to import natural resources. "Korea is one of the largest shipping markets in the world for LNG, coal and iron ore because the country is heavily industrialized but has no fossil fuel resources."
Indeed, industry analysts expect the global dry bulk segment to stabilize this year. A Citi report published earlier this month noted that the demand-supply gap narrowed to a six-year low in 2013, supporting a more than 80% jump in the Baltic Dry Index since August. It estimates that rising iron ore shipments will see bulk trade demand rise 6.3% this year against fleet capacity growth of 6.2%.
Last month, Hahn & Co. paid $190 million for a 57% stake in beverage company Woongjin Foods, which was sold by Woongjin Group as part of its bankruptcy process. In May the PE firm also entered into preliminary discussions to invest in STX Group subsidiary STX Energy but quickly dropped out.
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