Hahn & Co to buy Hanjin's bulk carrier business
Hahn & Co. will pay KRW400 billion ($380 million) for a 76% stake in Hanjin Shipping’s bulk carrier business. This is the South Korean private equity firm’s second foray into the shipping sector following an aborted attempt earlier this year to buy a controlling stake in Korea Line out of bankruptcy.
According to a regulatory filing, the bulk carrier business will transfer into a joint venture between Hahn & Co. and Hanjin. The transaction will see approximately KRW1.4 trillion in debt transferred from Hanjin to the new structure.
The move comes after the shipping company announced plans to raise KRW1.5 trillion through divestments of container terminals and vessels and then tap creditors for an additional KRW444 billion in loans. Hanjin affiliate Korean Air has already committed to provide new loans and subscribe to shares that will be issued next year.
Hanjin must repay KRW1.25 trillion in debt next year and KRW1.08 trillion in 2015. The company - the world's eighth-largest shipping player by fleet size - has posted losses for each of the past 10 quarters. Selling the bulk carrier business - which has a fleet of 36 vessels - will reduce Hanjin's debt-to-equity ratio to 673% from 987% at the end of September.
Hanjin is not alone in its travails, with the global shipping industry still struggling due to overcapacity and freight rates that have yet to fully recover from the global financial crisis. Of the four leading Korean carriers, Hanjin and Hyundai Merchant Marine are raising capital through asset sales and restructurings, while STX Pan Ocean and Korea Line have already filed for bankruptcy.
STX Pan Ocean filed in June after attempts to secure a private equity-led restructuring floundered. Korea Line entered bankruptcy in 2011 and Hahn & Co. agreed to buy the business in January of this year in a deal worth KRW1.1 trillion, including an equity commitment from the PE firm of KRW140 billion. Hahn & Co. pulled out the following month when it emerged that certain liabilities wouldn't be removed from Korea Line's balance sheet, which made the deal too risky.
Hahn & Co. was created in 2010 through a spin-out from Morgan Stanley Private Equity Asia. The new team raised $750 million for its debut fund the following year. The private equity firm has been involved in several transactions that have seen struggling South Korean conglomerates divest assets.
In May Hahn & Co. agreed to buy a 43.15% stake in STX Energy, a subsidiary of STX Corp, the parent of STX Pan Ocean. Earlier this month it paid $190 million for a 57% stake in Woongjin Foods, Korea's third largest non-alcoholic beverage company and subsidiary of ailing conglomerate Woongjin Group. The asset was acquired via a court receivership auction.
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