HANJIN PHILIPPINES DILEMMA: A BACKGROUND

Hanjin Heavy Industries and Construction Company (HHIC) Philippines hereinafter

referred as Hanjin-PH, one of the largest shipbuilding company in the country located in
Subic Bay Freeport Zone (SBFZ), is currently under receivership after having filed for
voluntary rehabilitation with the Regional Trial Court (RTC) of Olongapo City. Its total
liabilities run as high as US$1.3 billion or about PhP67.6 billion, almost 32% of which are
owed to local banks (Sicat, 2019). Currently, it employs more than 3,000 skilled laborers
and contributes to about a tenth of the gross regional domestic product (GRDP) of Central
Luzon. More than the socio-economic impact of the upcoming closure of Hanjin-PH, what
made it a national issue are the offers of at least two Chinese companies to takeover the
Hanjin-PH’s operations, which sits in a strategic location at the former US Naval Base in
Subic Bay facing the disputed islands in the West Philippine Sea. Due to the reaction of
the public, the Senate has proposed a government takeover of Hanjin-PH operations;
while the Department of National Defense (DND) expressed interest in Hanjin-PH’s
shipbuilding facilities.
In view of the foregoing, this paper seeks to assess the important issues related to the
bankruptcy of Hanjin-PH and propose policy options to address these issues. This will be
done in four sections. The first section will present a brief historical background of case
of Hanjin-PH. The second section will outline the strategic issues relative to the sudden
closure of Hanjin-PH using the PESTEM framework. The third section will assess the
identified issues using the Strengths-Weaknesses-Opportunities-Threats model. Finally,
the last section will propose policy recommendations to address the strategic issues
identified.
Background
Hanjin-PH, is a ship manufacturing company in Redondo Peninsula, SBFZ. It is a
subsidiary company established in 2006 by HHIC Ltd of Korea with an initial investment
of US$1 billion. Hanjin-PH, since its establishment, was considered as the biggest
employer and investor in the SBFZ. During its peak operations, it employed around
32,000-35,000 skilled laborers with about 22 subcontractors. Since 2006, it reported to
have delivered 123 ships, making the Philippines the fifth largest shipbuilding in the world
in 2015. The shipyard, through its ship exports, contributes 1.9% of the Philippines total
exports, and 9.5% of Central Luzon’s GRDP in 2016; while the entire manufacturing
sector, of which shipbuilding is a subsector contributes 34.6% of Central Luzon’s GRDP
in 2017 (Navarro, 2019).
On January 8, 2019, Hanjin-PH filed a petition for voluntary rehabilitation with the RTC of
Olongapo City, in accordance with Republic Act (RA) No. 10142, or the Financial
Rehabilitation and Insolvency Act of 2010, which provides for the rehabilitation or
liquidation of financially distressed entities (Sicat, 2019). Apparently, Hanjin-PH could no
longer pay-off its huge financial liabilities due uncontrollable circumstances. On the one
hand, Hanjin-PH is currently indebted in the total amount of US$1.3 billion from local
banks (U$412 million) and from South Korea’s financial institutions (around US$ 900
million). On the other hand, Hanjin-PH has reportedly suffered at least US$100 million in
losses due to stiff competition, lower prices because of lower market demand for ships,
and slow production due to lack of skilled laborers (Ylagan, 2019). Moreover, Hanjin-PH
had a fall-out with its parent company in South Korea, hereinafter referred as Hanjin
Korea, shortly after the declaration of bankruptcy by Hanjin Shipping subsidiary on August
31, 2016. Likewise adding to Hanjin-PH’s dilemma are the regulatory penalties imposed
for poor work plan standards that caused death and injuries to shipyard employees.
Furthermore, the tax holiday and power subsidy that Hanjin-PH has been enjoying since
establishment already ended in 2018 pushing operational expenses upward (Rosales,
Empeno, Lectura, Lenny, Medenilla, & Cabuag, 2019).
The Olongapo RTC’s approval of Hanjin-PH’s petition on 19 January 2019 placed the
company under receivership. Consequently, Atty. Rosario S. Bernaldo, founder of
Bernaldo, Mirador and Director Law Offices and the leading accounting firm R.S.
Bernaldo & Associates, was appointed by the Olangapo RTC as receiver on February 11,
2019 to manage the properties of Hanjin-PH before undergoing court-supervised
corporate rehabilitation (Empeno, 2019). As receiver, she will have responsibility over the
debt claims, as well as conduct audit and inventory of Hanjin-PH’s assets to determine
solvency or the ability to pay debt.
While the process of receivership and rehabilitation is underway, foreign entities including
two unidentified Chinese companies expressed interests in purchasing the 300-hectare
shipbuilding facility of Hanjin-PH. When news of the Chinese offer became public, an
adverse public reaction emerged prompting some members of the Philippine Senate to
express their vehement opposition to the imagined Chinese takeover. In addition, the
DND thru the Secretary of National Defense supported the interest of the Philippine Navy
to take over the facility in connection with the military’s modernization program
(Heydarian, 2019). Taking all these factors into consideration, the Hanjin-PH dilemma
has ceased to be a purely socio-economic problem but has been transformed into a
national security issue that has to be comprehensively addressed.