STX Pan Ocean, South Korea’s biggest commodities shipping line, filed for court receivership after a drop in rates left it unable to pay off its debt.

STX Pan Ocean Files for Court Receivership on Debt, Losses

STX Pan Ocean Co. (028670), South Korea’s biggest commodities shipping line, filed for court receivership after a drop in rates left it unable to pay off its debt. “STX Pan Ocean has been in a liquidity crisis as the company can’t raise enough funds after a slump and delayed rebound in bulk-shipping markets,” the company said in an e-mailed statement in Seoul, where it filed for receivership. Shares of the shipping line, now halted for trading, have fallen 46 percent in Seoul this year as parent STX Group tries to sell stakes in businesses including Pan Ocean as rates drop. The Baltic Dry Index, a measure of commodity shipping costs, has plunged 90 percent since touching a record high in 2008, and any delay in recovery could hurt more companies.“If the commodities-shipping market remains dreadful, it’s likely things would turn sour for more shipping companies,” said Lawrence Li, an analyst at UOB-Kay Hian Holdings Ltd. “I don’t expect in the near term there will be another massive failure like STX as companies are now becoming more prudent with their cash management.”

Net debt totaled 5.37 trillion won ($4.8 billion) at the end of last year, according to Jang S.J., a company spokesman. The company had $2.2 billion-equivalent of bonds and loans outstanding, according to data compiled by Bloomberg.

The company was unprofitable in three of the past four years as commodity-shipping rates sank.

Oversupply

“Oversupply in the industry and the purchase of new vessels have led to mounting debt and continued net losses,” STX Pan Ocean said in the statement.

The yield on STX Pan Ocean’s 6.7 percent notes due 2014 jumped 50 basis points to 11.13 percent on June 5, the biggest one-day rise since April 3, according to quotes from Nice Pricing Services Inc., a bond-pricing agency in Seoul.

Korea Exchange on June 5 set a deadline for STX Pan Ocean to clarify its position on court receivership or debt rescheduling by 6 p.m. today. The shares traded down 15 percent the same day before trading was halted.

Pan Ocean said on June 5 a decision to seek court receivership hinged on its request for emergency funding from its largest creditor Korea Development Bank. The lender’s decision not to buy the company led to court filing for receivership, STX Pan Ocean said in a the statement. An official at the bank declined to comment or be named when contacted by Bloomberg today.

KDB

KDB said in an e-mail June 5 it couldn’t confirm the request for emergency funding and hadn’t made a decision on whether to acquire Pan Ocean. KDB may buy Pan Ocean after writing off the stake owned by the company’s major shareholder and getting creditors to swap debt for equity, the Korea Economic Daily reported last month.

STX Group is in talks with Korea Development Bank on selling its stake in Pan Ocean, STX said in an e-mailed response to Bloomberg News queries May 29.

“The STX Pan Ocean issue is a big credit issue to which the authorities can only be sensitive toward,” Yoon Yeo Sam, a Seoul-based fixed-income analyst at Daewoo Securities Co. said by phone today. “This will make financing more difficult for companies.”

The drop in shipping rates has hurt other shipping lines as well.

Last year, Sanko Steamship Co., a Japanese operator of 185 ships, went into bankruptcy protection after failing to reach agreement with creditors on an out-of-court turnaround. The company suffered from a drop in shipping rates as it failed to cut expensive charters fast enough, it said at the time.

Sanko, Daiichi

Daiichi Chuo Kisen Kaisha, based in Tokyo, received a bailout from its lead shareholder Mitsui O.S.K. Lines Ltd. earlier this year as a drop in shipping rates lead to losses. The shipping line had about 240 ships in its fleet last year, mainly for bulk shipping. Pan Ocean shares slumped by the daily limit 15 percent in Seoul June 5 and were temporarily halted from Singapore trading on that day as the company’s Chief Executive Officer Seon Ryung Bae stepped down “due to personal matters,” according to a Singapore Exchange filing on that day. STX Group put its controlling stake in Pan Ocean up for sale last year amid a rate slump that has caused shipbuilding orders to fall and forced its three biggest units to seek voluntary debt rescheduling.

STX Group was founded in 2001 by Kang Duk Soo, who used life savings from a 27-year career at another of South Korean conglomerate or chaebol Ssangyong Group to build a business group spanning the manufacture of cruise ships, wind turbines and apartment blocks.

The group was built partly by buying financially struggling companies. In 2001, Kang bought Daedong Shipbuilding Co., then-South Korea’s eighth-largest shipbuilder, which had just exited court protection, and renamed it STX Offshore & Shipbuilding Co. Kang bought Pan Ocean Shipping Co. three years later while it was in bankruptcy protection.

To contact the reporters on this story: Rose Kim in Seoul at rkim76@bloomberg.net; Whanwoong Choi in Seoul at wchoi70@bloomberg.net