By Camille A. Aguinaldo, Melissa Luz T. Lopez and Janina C. Lim, January 17, 2019; Business World


Image Credit to HHIC-PH

OPTIONS for a resolution of debt troubles of Hanjin Heavy Industries and Construction Philippines (HHIC-Phil), which has entered rehabilitation, now include a possible government takeover of its facilities in Subic Bay Freeport in Central Luzon, the country’s Defense chief said on Wednesday.

Wednesday also saw a senior central bank official saying that banks may have to be more “proactive” in monitoring the financial condition of borrowers to which they have significant exposure, while a HHIC-Phil official said the company could return to profit three years from the entry of an investor.

During Senate deliberations on the proposed Department of National Defense 2019 budget, Defense Secretary Delfin N. Lorenzana said he posed the idea to President Rodrigo R. Duterte on Tuesday evening, adding that the latter was “very receptive” to the idea.

“While we sympathize with the financial woes of Hanjin, we are excited really by this development because we see the possibility of having our own shipbuilding capacity in the Philippines, especially large ships like what’s being built in Hanjin’s shipyard in Subic,” Mr. Lorenzana said.

“And so, the Flag Officer-in-Command Admiral (Robert A.) Empedrad reached out to me — I think yesterday or the other day — and I said, ‘why not we takeover the Hanjin [facility] and give it to the Navy to manage?’” he recalled.

“And so I brought this idea to the President last night and he’s very receptive to the idea. Although the Secretary of Finance… (Carlos G.) Dominguez (III) is also thinking of… how the local banks can recoup their investment there…”

Presidential Spokesperson Salvador S. Panelo declined to comment when asked to verify the development.

The South Korean shipbuilder’s debts to five of the country’s biggest banks have been estimated to total some $412-million.

Trade Undersecretary and Board of Investments managing director Ceferino S. Rodolfo said last week that two Chinese shipbuilders have expressed interest in acquiring HHIC-Phil.

Mr. Empedrad told senators in the hearing that the Philippine Navy “cannot take over totally the entire Hanjin [shipyard] but a portion probably…”

Senate Majority Leader Juan Miguel F. Zubiri proposed for management of the shipbuilding facility to be given to a private entity while the government takes a majority stake. “Instead of using funds to (buy ships) abroad, we are earning. Filipinos are building our ships and it’s under the control of the Department of National Defense. I think it’s a win-win solution,” he said.

Senator Panfilo M. Lacson, one of the Senate Finance committee’s vice-chairmen, said the P75 billion added to the Department of Public Works and Highways 2019 could help cover the government takeover. “There’s… P75 billion in the proposed budget… What if the government will just take over Hanjin[’s shipyard] and then bid out to possible partners, private entities, then let the Philippine Navy partner with private entity?” Mr. Lacson said.

The local banking sector will not reel from HHIC-Phil’s $412-million loan default, the central bank said on Wednesday, even as one of its senior officials flagged the need for lenders to be more “proactive” in vetting huge loans.

The Bangko Sentral ng Pilipinas (BSP) moved anew to calm markets, assuring that the five banks with big loan collectibles from the South Korean shipbuilder have what it takes to remain on solid ground.

“[B]ased on the results of the BSP’s stress-testing exercise, an assumed write-off of the loan exposures to Hanjin will have minimal impact on the industry’s CAR (capital adequacy ratio),” BSP said in a statement.

Industry-wide CAR stood at 15.36% as of September 2018, well above the eight percent global standard and the central bank’s 10% requirement, while liquidity coverage was more than enough at 157.6%, data showed.

The Rizal Commercial Banking Corp. (RCBC) had the biggest exposure with $145 million lent to HHIC-Phil, followed by the state-run Land Bank of the Philippines with $85 million; the Metropolitan Bank & Trust Co. (Metrobank) with $70 million; BDO Unibank, Inc. with $60 million and the Bank of the Philippine Islands (BPI) at $52 million.

“Based on the latest data, the BSP is confident about the local banks’ ability to manage this specific challenge. They are also equipped to handle the negotiations required to complete Hanjin’s corporate restructuring while remaining compliant with prudential regulations,” the central bank added.

Asked whether banks will need to tighten lending standards after Hanjin’s case, BSP Deputy Governor Chuchi G. Fonacier replied in a text message: “Partly yes, and partly on really being proactive in monitoring the financial condition and other developments of their borrowers, especially those with large exposures.”

In a separate statement on Wednesday, international debt watcher Fitch Ratings said that Philippine banks will not be shaken by HHIC-Phil’s problem debts, but noted that lenders with “more significant exposure” could see some pressure on their credit rating.

Referring to RCBC’s exposure to HHIC-Phil, Fitch noted that “[t]he full amount exceeds its 2017 net profit, and provisioning on these loans could result in the bank reporting at least one quarterly loss, implying some risk of capital impairment, although we do not expect the bank to set aside the full amount of its exposure.”

“The exposure of the three largest banks — BPI, BDO and Metrobank — is more manageable relative to their loan books and pre-provision profits,” the credit rater added.

“The sector- and company-specific causes suggest this case is unlikely to indicate broader stress across banks’ loan books…”

A HHIC-Phil executive, who asked not to be named, said by phone on Tuesday that the company expects to return to profit three years after the entry of an investor.

“We really see ourselves profiting after three years. We just have to be funded $12 million monthly,” the source said. “We’re open to any tie-up as long as the company can take care of the debt and provide for the operating capital.”

Among others, HHIC-Phil is banking on developments like the United Nations International Maritime Organization’s policy to cut the sulfur content of ship fuel to 0.5% from the current 3.5%. “That policy will take effect in 2020 and we can really make profit from that as there is only a small number of ships that meet that requirement,” the executive said. — Camille A. Aguinaldo, Melissa Luz T. Lopez and Janina C. Lim