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(LEAD) Hanjin Shipping saga casts doubt on market alert system

All News 15:35 April 28, 2016

(ATTN: UPDATES Hanjin Shipping's share price in 12th para)

SEOUL, April 28 (Yonhap) -- The saga of the financially troubled Hanjin Shipping Co., South Korea's biggest shipper, has raised questions over whether the market's system for warning investors against potential risks is working properly, analysts said Thursday.

Battered by falling freight rates amid a protracted slump in the world's economy, cash-strapped Hanjin Shipping filed for a creditor-led debt revamp Monday in its last-ditch bid to stay afloat, offering to take intensive self-rescue measures.

Hanjin Shipping has to pay off or refinance 500 billion won (US$436 million) worth of debt that matures in the first half of the year. As of end-2015, Hanjin Shipping's debt totaled 5.6 trillion won. The company is an affiliate of Hanjin Group that has the country's top air carrier Korea Air Lines Co. under its wing.

Market watchers said South Korea's three major credit appraisers began to downgrade their ratings on Hanjin Shipping from late last year, but it was long overdue given that the firm's financial health had been worsening rapidly for years.

In late December, Korea Investors Service Inc. lowered its long-term credit rating on Hanjin Shipping to below investment grade and has downgraded it twice since then.

NICE Investors Service also cut Hanjin Shipping's credit rating to junk status in late December, and Korea Ratings gave it the same rating in mid-November.

The ratings agencies are widely seen as having responded rather quickly to the financial crisis of Hanjin Shipping, compared with previous cases.

In July last year, they came under flak for not playing their role as they downgraded their credit ratings of Daewoo Shipbuilding & Marine Engineering Co. shortly after revelations of massive losses.

In 2012, the credit appraisers awarded the highest A-ratings to Woojin Holdings, the holding company of midsize conglomerate Woongjin Group, but they hurriedly cut the ratings to the default level of D after it was placed under court receivership.

"The financial status of Hanjin Shipping has been deteriorating fast for the past couple of years," a local brokerage analyst said. "The ratings downgrades are long overdue."

Another analyst defended the credit appraisers, saying they must have found it difficult to downgrade their credit ratings that could have a negative impact on overseas trading and lead to other repercussions.

In contrast to credit appraisers' "belated" warnings, no local brokerage houses flagged risks against investing in Hanjin Shipping until recently. Hanjin Shipping shares ended at 1,835 won on the Seoul bourse Thursday, down 3.42 percent from the previous day and far lower than the closing price of 3,540 won on the first trading day this year.

Major securities companies have published 10 reports on Hanjin Shipping this year, but none have issued sell recommendations for the struggling shipping line.

Two brokerages, which released reports this month, even raised their price targets for Hanjin Shipping to well above the 3,000 won level.

Along with loss-laden shipbuilders, Hanjin Shipping is a major target of a government-initiated corporate restructuring drive aimed at fending off any fallout of their sudden collapses on Asia's fourth-largest economy that has been on the skids due to slumping exports and anemic domestic demand.

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