High Bunker Prices, Oversupply Blamed as STX Pan Ocean Files for Bankruptcy

The company will go through a government-backed restructuring process

STX Pan Ocean Co. has filed for bankruptcy, citing a broad range of issues, including high bunker prices, affecting the shipping industry as a whole, the Wall Street Journal reports.

"A combination of a sharp decline in freight rates, a delayed industry recovery, oversupply of ships due to an increased production at Chinese shipyards and higher fuel costs drove up debt and squeezed margins," the company said.

STX Pan Ocean, a unit of South Korean shipping and shipbuilding company STX Group, will go through a government-backed restructuring process after filing for receivership.

Korea Development Bank (KDB), the company's main creditor, said creditors decided not to acquire the company.

"Due diligence outcome showed acquiring STX Pan Ocean didn't satisfy the requirements of the restructuring process," said Ryu Heui-kyoung, KDB's head of corporate banking.

The bank could still participate in the restructuring process, and creditors are also creating a restructuring plan for STX Offshore & Shipbuilding Co.

STX Group had attempted to sell its 36 percent stake in STX Plan Ocean, but had not found buyers.

It had also tried to raise 2.5 trillion won ($2.2 billion) by selling non-shipbuilding assets, but had raised only 1.13 trillion won ($1 billion).

STX Pan Ocean has lost $437 million in the past two financial years and had a net debt of $3.1 billion by the end of March, the Financial Times reports.

"Their situation is really horrible," said Park Moo-hyun, an analyst at E-Trade Securities Korea.

"The gap between the sliding freight rates and rising oil prices has been getting bigger, leading to these heavy debts."

The bankruptcy filing follows a similar move last year by Japan's Sanko Steamship Co. Ltd. (Sanko Line).