Stock trading of South Korea’s Hanjin Heavy Industries & Construction Co. was suspended on Wednesday because the company’s capital has been completely eroded after reflecting losses from its subsidiary in the Philippines.

Hanjin Heavy Industries announced in a regulatory filing on Wednesday that the company’s net loss snowballed to 1.32 trillion won ($1.18 billion) in 2018, up from a loss of 278 billion won a year ago after it reflected losses from its Subic shipyard in the Philippines that has been under workout program.

Accordingly, its shareholders’ equity plunged to a deficit of 742.2 billion won on a consolidated basis last year versus 530.3 billion won in total capital, indicating complete capital erosion as of the end of 2018.

The company’s capital erosion led to the immediate suspension of its stock trading in Korea’s main Kospi market on Wednesday. Shares of its parent company Hanjin Heavy Industries & Construction Holdings Co. skid 5.9 percent, or 170 won, to finish at 2,720 won.

Its stock trading would be resumed when the country’s only stock market operator Korea Exchange (KRX) confirms improvement in the company’s financial health a year later. Hanjin Heavy Industries said it will submit its capital expansion plan to KRX soon.

Hanjin Heavy Industries is currently in the final stage of negotiations with its Korean creditors including Korea Development Bank (KDB) as well as the lenders in the Philippines to swap debts in the Subic shipyard into equity. They are also said to be discussing capital reduction. Following the planned debt-to-equity swap deal, Hanjin Heavy Industries’ management control currently under the largest shareholder Hanjin Heavy Industries & Construction Holdings Co. will be handed over to KDB.

Hanjin Heavy Industries expects its financial health would improve soon after its creditors agree on the company’s debt restructuring plan and the workout program for the Subic shipyard that has been suffering from massive losses since 2016.

With the improvement in financial status through the restructuring of its subsidiary in the Philippines, the Korean mid-sized shipbuilder would be able to start anew, market experts expect.

Hanjin Heavy Industries has been carrying out massive restructuring since 2016. It has transformed its Yeongdo shipyard in Busan into facilities dedicated to defense business, and its construction division has shifted its main focus to residential housing construction.

Thanks to its relentless efforts to reorganize its business, Hanjin Heavy Industries swung to an operating profit of 61.8 billion won in 2018 from a loss of 1.9 billion won a year ago on sales of 1.7 trillion won, up 3 percent over the same period.

By Kang Gye-man and Lee Eun-joo

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