Some Philippine banks’ huge exposure to Hanjin Heavy Industries and Construction Philippines (HHIC-Philippines) — which recently filed bankruptcy after it defaulted on $412 million (Php21.424 billion at Php52 to $1) in outstanding loans — is ‘very negligible’ according to Bangso Sentral ng Pilipinas (BSP) Senior Central Bank Official. Despite this exposure, the BSP noted that the country’s banking industry is in good standing to weather these loan defaults based on the regulator’s initial assessment about Hanjin’s bankruptcy.
BSP Officer-In-Charge Deputy Governor Diwa C. Guinigundo said that the banks in compliance with the BSP’s regulations have risk management systems in place, therefore they are ‘very liquid’ and their ‘profitability has been sustained.’ He added, “Their loan loss provisioning is more than a hundred percent. They can very well handle and manage this specific case.” He also said that Philippine banks as a whole were very strong and more than adequately capitalized, noting the continuing growth in the local banks’ assets and the quality of their loans based on non-performing loan ratio of less than 2 percent.
A set of standards to manage credit risks has long introduced by the central banks to the big local banks by asking them to maintain capital buffers worth at least 10% of assets. To manage exposures, a maintaining of 25% single borrower’s limit (SBL) was set. In particular, to ensure that the banks will not fold even if that borrower will suddenly default, the SBL caps credit lines extended to a single person or firm.
Established in 2006, Hanjin Philippines has delivered a total of 123 vessels to clients across the globe since 2008, making the Philippines the world’s fifth largest shipbuilder. Last January 8, the South Korean shipbuilder’s unit based in Subic Bay filed for corporate rehabilitation under Republic Act 10142 at the Olongapo Regional Trial Court, leaving over $400 million in loans from Philippine banks. Passed in 2010, RA 10142 provides the appropriate mechanisms for the rehabilitation or liquidation of financially distressed companies.
THE BIGGEST CORPORATE DEFAULT IN PHILIPPINE BANKING
In a statement of Subic Bay Metropolitan Authority (SBMA) Chairman Wilma T Eisma on a South Korean news agency, Yonhap last January 8, she said that Hanjin officials informed her that the company’s debts reached over $400 million from Philippine banks and around $900 million from South Korean lenders, pushing Hanjin Philippines to file for corporate rehabilitation. She was quoted in her statement, “The bottomline is that the company said it does not have enough cash to repay its loans, and that it cannot continue with its operations under these circumstances.”
Hanjin Philippines reportedly owes the Rizal Commercial Banking Corp. (RCBC) an amount of $140 million, $80 million to the state-owned Land Bank of the Philippines, $60 million to Bank of the Philippine Islands (BPI), $72 million to Metropolitan Bank & Trust Co. (Metrobank), and $60 million to BDO Unibank, Inc. Most of the money was reportedly lent without collateral protection.
Among the 10 biggest lenders in the Philippines, the involved banks have reportedly agreed that no one will ‘unilaterally seize’ the Hanjin’s assets to protect the country’s banking system and economy, instead they are now working together to cover their combined loan exposure to Hanjin Philippines. The creditors are also working to take control of shipbuilding giant’s property in Zambales, with an estimated $1.6 billion assets, reportedly considering talking to strategic investors.
One of the five banks, RCBC has downplayed the impact of their exposure to Hanjin’s fallout noting that the total exposure is only 1 percent of their assets of Php614 billion and less than 2 percent of the Php387 billion total net loans.
“The amount involved is very manageable and the borrowing company’s business is actually very attractive with a lot of potential. With the five creditor-banks working together and looking for an investor as one option, the matter’s resolution is just a matter of time and we expect that to be sooner than later,” RCBC stated to the media.
Photo from: HHIC-Philippines website
CHINESE INVESTORS EXPRESS INTEREST ON SUBIC SHIPYARD
It is reported that foreign investors with shipbuilding interests are looking over the possibility of buying into the Korean conglomerate investment. According to an official of the Department of Trade and Industry (DTI), two Chinese shipbuilders have expressed interest in acquiring HHIC-Philippines.
DTI Undersecretary and Board of Investments (BoI) Managing Director, Ceferino S. Rodolfo said during the press brienfing in Makati City last January 10 said that they have gotten in touch with prospective investors, describing them as big shipyard operators in China. The two Chinese companies are in the business of building big ships, and the other one in producing roll-on, roll-off (RoRo) ships. He also said the Chinese companies’ representatives have asked him for more information regarding Hanjin’s Subic shipyard operations.
“If you look at the assets of Hanjin, it’s very specialized for the very big vessels, international vessels. Very few companies would have that capability to produce those kinds of ships and market,” he said. Looking at all possibilities, the undersecretary added that from an industry development perspective, our interest in the Philippines is to produce the smaller ones, those that would provide to us the RoRo ships.
Mr. Rodolfo also said that while a number of investors have already been looking at opportunities in the Philippines for shipbuilding and repair, the recent news about Hanjin’s fallout sparked interest from investors. Some of these would-be financiers have visited Hanjin in Subic last year according to the BoI official. Hanjin Philippines was valued at $2.6 billion back then, but right now, its business value is reduced to an estimated amount of $1.6 billion.
DTI Secretary Ramon M. Lopez said that the department is ‘eager to find a white knight’ for Hanjin Philippines. During the briefing, he said that DTI’s first objective is to replace Hanjin with another shipbuilder that will take over it.
SBMA said in a statement that the company is still working on six multi-million building projects. Prior to the recent shutdown, Hanjin maintains the shipyard in Subic and has hired 22,000 workers since its beginning operations in 2006, but has reduced its pool of workers to 3,800.
“Their problem really is the working capital, cash flow that is basically hampering their operation. So ang kailangan masuportahan [where support is needed] is first, to assist in the possible strategic investor coming from the industry to be the one doing, taking over. In other words, buying that business,” Mr. Lopez added.
The investors could see this as a major opportunity in locating in a recently constructed major facility, which has a rich supply of skilled labor resource.