MYLENE T.

PAGADUAN

BSENTRE 4-2

PROF. CAROL MATEO

A POSITION PAPER ABOUT

THE BANKRUPTCY OF HANJIN SHIPYARD

INTRODUCTION

Last month, Hanjin Philippines – a local subsidiary of South Korean shipbuilder Hanjin

Heavy Industries and Construction and a major employer in the area – announced it was

pulling out of Subic Bay after declaring bankruptcy over a reported US$412 million in

unpaid loans.

Within days, at least two major Chinese shipbuilders were eyeing the large plot of land

currently occupied by Hanjin, which is located on part of what was the United States’

largest overseas military base before its closure in 1992.

This prompted an outcry, fuelled by the latent mistrust of China that has been felt by

people in the Philippines for years. According to local polling body Social Weather

Stations, net trust in China among Filipinos has been positive in only nine of the 47

surveys it has conducted on the topic between August 1994 and November.
BACKGROUND

Hanjin Heavy Industries and Construction Philippines, known as HHIC Phil, was

established in February 2006 by Hanjin Heavy Industries and Constructionof South

Korea. In the same month, the first ship building contract was signed for 4 container

ships. In May 2006, the construction of a shipyard began on Redondo Peninsula - on the

northern edge of Subic Bay.

The first vessel "Argolikos" was delivered in July 2008 for the Greek ship owner

Dioryx.[2] As of April 2011, the shipyard had delivered 20 ships. In 2013, the shipyard

made its first oil tanker and in 2016, it delivered its first gas carrier. Additionally, the

shipyard has also built parts of CALM buoys used for the Malampaya offshore project.

The shipyard also has two large drydocks.[3]

In January 2019, the company filed for the biggest bankruptcy in the Philippines with

unpaid loan obligations amounting to $412 million.

As a part of its expansion process overseas, in 2004, Hanjin Heavy Industries

Corporation started construction of a shipyard in Redondo peninsula, north of Subic

bay, Zambales, Philippines. As per the HHIC website, this has resulted in the fourth

largest shipyard in the world. As of 2011 September, the shipyard employed

21,000 Filipinos. Its workforce was expected to increase to nearly 28,000 in 2016,

however a slump in ship building projects has limited the workforce to 20,000 people as

of 2017.
As of September 2017, HHIC Phil is the largest shipyard in the Philippines and one of the

largest private employers in the country.

According to the New York Times article "Philippines Role May Grow as U.S. Adjusts

Asia Strategy" of April 30, 2012: "On April 18, a subsidiary of Huntington

Ingalls Industries, a United States defense contractor, announced a deal to work with

Hanjin Heavy Industries, which maintains a shipbuilding and repair facility at the former

base at Subic Bay. That opens the door to large-scale servicing of United States military

ships there for the first time in almost 20 years."

In a news release announcing the deal, Huntington Ingalls said the companies “will work

together in providing maintenance, repair and logistics services to the U.S. Navy and

other customers in the Western Pacific region.”

ALTERNATIVES

Hard times lie ahead for more than 30,000 workers of Hanjin Heavy Industries and

Construction Corp. Philippines, the biggest foreign investor of Subic Bay Freeport.

Unable to pay its debts, the Philippine branch of the erstwhile flagship of South Korea’s

shipbuilding industry has filed for rehabilitation at the Olongapo City Regional Trial

Court.

The debtor-initiated petition will be resolved in accordance with the Financial

Rehabilitation and Insolvency Act of 2010 (or Republic Act 10142), which provides an

orderly procedure for the rehabilitation (if still feasible) and liquidation (if closure

becomes inevitable) of businesses that run into serious financial trouble.

Amid the gloomy report about the biggest corporate default in Philippine business

history, it is heartening to note the five domestic banks that have a combined P21-billion

loan exposure in Hanjin have entered into a gentleman’s agreement not to undertake

individual efforts to seize its properties to satisfy their debts.

In the past, when banks got word that a debtor-company was in danger of going under,

they scrambled to lay their hands on whatever assets were within reach to minimize their

losses.

Although this approach made good business sense from the bank’s perspective, it often

resulted in the closure and liquidation of the company.

Thus, the banks not only lost the opportunity to be proportionally paid, they also found

themselves paying huge legal fees for recovering properties that were hardly worth the

money shelled out to acquire them.

The filing of the bankruptcy petition, however, does not preclude the banks from

exploring other means to help Hanjin get out of its financial fix. The law gives the

affected stakeholders of businesses that file for rehabilitation every opportunity to resolve

the problem out of court.

For one, the banks can help in the search for a “white knight” that has the resources to

settle Hanjin’s unpaid debts and, at the same time, provide the capital needed to make it

an operating concern again.

Expect that savior though, as a precondition for its takeover, to pressure the banks into

agreeing to accept haircuts in their exposures, extend credit assistance at low interest

rates, defer the collection of loan payments, or a combination of the above.

As in most bankruptcy cases, the fate of the remaining or soon to be displaced Hanjin

employees would hang in the balance.

Assuming the rehabilitation petition pushes through and a rehabilitation receiver is

appointed by the court, or a white knight comes along, the employment status of those

workers would be a bone of contention.

Who among them will be retained and who will be laid off? If there is an existing

collective bargaining agreement, will the new owner honor it in full or demand that some

of its economic provisions be amended to reduce the company’s operational expenses?

The sanctity of employment contracts earlier entered into by Hanjin would be severely

tested.

In similar instances in the past, the affected employees, or their representative, were

rarely given a seat at the discussion table. Their fate was often left to the conscience or

goodness of the people tasked with finding a solution to the bankruptcy problem.
CONCLUSION

If at all, the employees’ interests were discussed in conjunction with the preparation of

the company’s profit and loss statement or other financial documents for the benefit of

the court or the white knight.

They were just a number. The human element was rarely given the recognition and

consideration it rightfully deserves.

Hanjin’s bankruptcy should not be looked at simply as a financial issue that is better left

to the court or the creditors to decide.

The Hanjin employees deserve the same level of concern and care that the government

has shown in handling the financial problems of displaced overseas Filipino workers.

BIBLIOGRAPHY

 https://www.philstar.com/business/2019/01/16/1885352/hanjin-philippines-

shipbuilding-bankruptcy

 https://en.wikipedia.org/wiki/Hanjin_Heavy_Industries

 https://business.inquirer.net/263599/fallout-from-hanjins-bankruptcy

 https://www.philstar.com/business/2019/01/16/1885352/hanjin-philippines-

shipbuilding-bankruptcy
APPENDIX