Hanjin Shipping has closed a $150 million securitization of its trade receivables in a deal structured to take some weight off its balance sheet. The transaction was arranged by ABN AMRO, who approached Hanjin five months ago with the idea for a trade receivables securitization deal.
The deal is highly structured to take into account the varied nature of Hanjin's receivables. These receivables come from global importers of Korean goods and they are situated all over the world. As such different rules govern their assignment and each of them has a different tenor.
Under the terms of the deal, Hanjin will daily sell all the receivables it is owed from its global container line business to a special purpose company in Ireland, which will immediately sell them on to another special purpose company in Jersey. The Jersey company will then declare a trust over these receivables and issue two certificates of beneficial interest. The first certificate will be retained by Hanjin, while the second certificate will be sold to an ABN AMRO vehicle in the US which in turn raises money through the Commercial Paper market.
Such complexity allows Hanjin to sell its receivables without any tax dues. It also allows the borrower to raise rolling debt with a tenor of up to three years off its balance sheet. The off-balance sheet aspect of the deal is crucial to Hanjin, which is trying to reform its balance sheet like most of corporate Korea after the 1998 financial crisis.
Moreover the debt comes from a funding source that Hanjin would not otherwise have tapped and allows it to borrow at rates that are very cheap compared to standard international borrowing costs. Key to the investors being comfortable with the credit was that Hanjin has a world-class accounts receivables management system. This system allows ABN AMRO and Hanjin to jointly track all the receivables which are due in the 41 jurisdictions in which Hanjin operates on a real time basis.
Commenting on the deal, Gary Watmore, head of ABN AMRO's regional asset securitization team said: "this financing structure developed by the bank is applicable to other transportation clients as well as Korean corporates with short-dated receivables and it is in line with the general trend in Korea to reduce the asset ownership and de-leverage balance sheets."
