Korea’s STX Pan Ocean files for bankruptcy after PE rescue fails
STX Pan Ocean, South Korea’s largest bulk shipping group, has filed for court receivership after attempts to secure a private equity-led restructuring of the beleaguered business failed.
It is one of a number of conglomerates, or chaebols, that have been seeking to divest assets in response to a prolonged downturn in industries such as shipping and construction. Last month domestic GP Hahn & Co. agreed to buy a significant minority stake - potentially rising to a control position - in STX's commercially healthy energy subsidiary.
STX had been in negotiations for weeks with Korea Development Bank (KDB), the shipping unit's main creditor, over a voluntary debt relief and restructuring program to be led by a KDB-owned private equity fund. The state-run bank said on Friday that, based on due diligence conducted, Pan Ocean didn't satisfy the requirements of the restructuring process.
However, it didn't rule out participating in a future restructuring of this or other divisions.
STX subsidiaries are expected to see KRW910 billion ($808 million) worth of bonds mature in the first half of 2014 and a further KRW420 billion in the second half. STX Offshore & Shipbuilding has already received KRW600 billion from creditors to repay maturing bonds and KDB is conducting due diligence for a potential restructuring.
The parent group, a shipping, trading and shipbuilding titan, is struggling to meet its debt obligations in the face of weak dry-bulk freight rates and sluggish demand for new vessels. The company suffered in the wake of the global financial crisis, having aggressively expanded its fleet in 2007-2008 only to see the market crumble.
STX Pan Ocean recorded cumulative losses of $437 million in the past two financial years and its net debt stood at $3.1 billion at the end of March.
Korea Line, the country's fourth-largest shipper, filed for court receivership last year. Hahn & Co. agreed to buy the business out of bankruptcy in February but pulled out when it emerged that certain liabilities wouldn't be removed from the balance sheet, which made the deal too risky.
Most of the chaebols mooted as potential sellers are drawn from the second and third tiers of corporate Korea. Some, like STX, are in distress, but others are under political pressure to stop expanding beyond their core businesses due to concerns that they are stifling the development of smaller companies.
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