Hanjin Bankruptcy – More than just the Banks
The corporate bankruptcy of Hanjin Heavy Industries and Construction Philippines recently shook the walls of five major banks in the Philippines, namely Rizal Commercial Banking Corp. (RCBC), Land Bank of the Philippines (LandBank), Metropolitan Bank & Trust Co. (Metrobank), BDO Unibank Inc. (BDO) and Bank of the Philippine Islands (BPI), as reports reveal the shipbuilding company’s USD 412 million loan to these Philippine lenders. Another USD 900 million is reportedly owed to South Korean banks.
However, these banks have downplayed the severity of situation, claiming that their total exposure is bearable when compared to total loans issued. RCBC, the most exposed of these Philippine lenders, disclosed that loans to Hanjin comprise just 1% of their total assets, and less than 2% of their total net loans.
While lenders have Hanjin exposures in tolerable levels, the same may not be the case for the shipbuilder’s suppliers. Based on a Business Mirror report dated Feb. 11, 2019, claims worth PHP 48 billion (approximately USD 923 million) were filed in Olongapo Regional Trial Court as of February 8, 2019. More than half of these claims are from other creditors and suppliers who may not have the same strict risk management protocol as the mentioned banks.
Several questions occurred to our team as we mulled over the potential devastation caused by Hanjin, not just to their lenders or clients, but also to their suppliers – How much share in these suppliers’ revenue does Hanjin contribute? Do they have enough cashflow to cover for losses or delayed payments from the shipbuilder? If not, do they have the means to mitigate these losses?
Failures of large companies may not always cripple the macroeconomy, but stories like these change the dynamics of an industry and create bad ripple effects on smaller companies in the value chain. It is always in our interest to dig deep, find out what could have been done to prevent such crises, and provide solutions that would actually do so. Stay tuned as we explore further how this case has affected other companies in the supply chain.
• Claims vs Hanjin at P48B Long Rehab Process seen
• Hanjin Philippines Shipbuilding Bankruptcy
• Exposure to Hanjin Philippines may put local banks ratings under pressure — Fitch
• Clarification of News Article Jan 15 2019 — RCBC
• Debt-equity swap planned for HHIC