Dive Brief:
- A recent report by the International Monetary Fund posits that corporate debt restructuring would yield a pay off for Korea and its struggling shipping concerns, American Shipper reported Monday.
- By IMF accounts, the total cost of restructuring could reach about $27 billion.
- The IMF estimates that the total number of workers impacted by bankruptcies and bailouts in the shipping sector will total around 10,000. The timeline for recovery is approximately 10 years, according to the fund's Monday report.
Dive Insight:
Bankruptcies are complex, but according to the IMF report, South Korea has handled its shipping industry's troubles rather well and shown the benefits of corporate restructuring, as opposed to liquidation.
Hanjin Shipping and Hyundai Merchant Marine stand out as two of the most prominent cases of corporate restructuring. Hanjin, which went bankrupt in August, is heavily downsizing to become a regional carrier as part of a government led restructuring (although some commentators have likened it more to liquidation).
Meanwhile, Hyundai struck a deal with creditors in July to lower debts in exchange for a wide-scale restructuring. The latter company is now considering further expansions through purchases of Hanjin assets and to join the 2M alliance.
Despite the heavy job losses and high capital needs, the IMF argues export-oriented countries cannot afford to let major exporters or industries die. Restructuring decreases debt and permits a strengthened resurgence.
An example more close to home may be General Motors, which declared bankruptcy in 2009 and was quickly "bailed out" by the U.S. government. Following the economic crisis and corporate crisis, the company has shown a remarkable resurgence and saved jobs in the long-term.
Furthermore, and perhaps more relevant to shippers with claims against South Korean bankrupt companies, it allows for compensations of debt and disruption that are not typically completed under complete liquidation.
