Govt must stay out of Hanjin mess, shipyard business
Credit to Author: The Manila Times| Date: Wed, 16 Jan 2019 16:13:33 +0000
THE surprise bankruptcy of shipbuilder Hanjin Heavy Industries and Construction Philippines (HHIC-PH) is certainly cause for grave concern. But just as Malacañang has so far downplayed the urgency of the matter, the appropriate government response in the meantime would be to carefully monitor and assess the situation, instead of moving to take over the troubled facility as suggested by some lawmakers.
The Hanjin PH shipyard’s financial demise will unavoidably have some negative impact on the country’s economy, however little it would be as estimated by ratings agency unit Fitch Solutions. Hanjin PH was the largest employer within the Subic Bay Metropolitan Authority (SBMA) area, at one time employing more than 30,000 people. For most of its 10 years of full operation in the country, the shipbuilder has been one of the Philippines’ top exporters, helping to establish the Philippines as one of the top shipbuilding countries in the world.
Hanjin PH fell victim to a sharp downturn in the global shipbuilding industry and to the larger financial struggles of its South Korean parent, the Hanjin Group. Although the Philippine unit had enough orders to keep its workshops full through next year, the unique way in which new ships are financed left it badly overextended, and unable to secure new loans to continue funding its operations. The company has disclosed that it owes some $412 million to banks here in the Philippines, as well as $900 million to various creditors in South Korea.
Alarmed by reports that some Chinese investors may be interested in buying out the Hanjin PH facilities, a number of party-list House representatives earlier this week urged the government to “take a serious look” at taking over the shipyard, citing the security risk from a possible Chinese involvement in a key industry.
That recommendation may be unnecessary and unjustified at this point. While careful protection of national security is of paramount importance, singling out Chinese investors among all other foreign investors in the country as a threat when their presence is allowed in the local shipbuilding industry is not a fair business policy. There is not even reliable information that any investors from China are taking a serious look at Hanjin PH’s assets at this point.
There is also no legal basis for the government to carry out what would in effect be an expropriation of HHIC-PH assets. Congress could conceivably create a law enabling the government to do so, but this would be disastrous to the country’s efforts to attract and keep foreign investors.
The alternative, which would be for the government to buy out HHIC-PH, would likewise be economically foolish. Apart from having to pay something at least close to fair market value for the company’s assets, the government would be obliged to assume the company’s $1.312-billion (P68.33 billion) debt. In exchange for that vast expenditure, the government would take ownership of a business it does not have the capacity to operate, is clearly unprofitable now, and given the global shipping market, very likely cannot be made profitable for years to come.
As things now stand, Hanjin PH and its creditor banks here are working together to find a way to effectively resolve the company’s insolvency, under the watchful eyes of the court and concerned agencies such as the Bangko Sentral ng Pilipinas and the Department of Trade and Industry.
Indeed, the government’s long-term Maritime Industry Development Plan must seek to increase and promote domestic production capacity in shipbuilding and repair to meet local and global demand. But there is no need for it to step into Hanjin’s case and turn its shipyard business around for that purpose. For now, the government should just be carefully monitoring the full impact of the bankruptcy on the local banks involved, while concerning itself with the welfare of Hanjin PH’s affected workers and local partners.
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