With only weeks remaining in the term of President Rodrigo Duterte, the Philippines appeared to be repivoting again to the United States with giving approval to an American company’s acquisition of the facilities left behind by South Korean chaebol Hanjin.
The government-run Subic Bay Metropolitan Authority (SBMA) announced in March that U.S. private equity firm Cerberus Capital Management bagged a US$300-million deal to take over the operations of the Hanjin shipyard at the former US naval base that is now a freeport.
The Korean chaebol built the shipyard at a 300-hectare area within the freeport in 2006 and quickly signed shipbuilding contracts that turned the Philippines into one of the top shipbuilding nations in the world.
Within 10 years, Hanjin Philippines employed 35,000 workers at its peak with more than a dozen orders in the books.
However, a downturn in the shipbuilding sector and labor problems caused Hanjin to default on $1.3 billion in outstanding loans, including $400 million due to Philippine banks, and $900 million in loans from South Korean institutions.
Hanjin Philippines filed for bankruptcy in 2019 and went into receivership as it laid off 10,000 workers. It was the biggest bankruptcy in the Philippines, to date.
According to Philippine Finance Secretary Carlos Dominguez III, the $300-million lease agreement with Cerberus was a “win-win” deal for all parties.
It would give Cerberus a new revenue source as it could sublease parts of the facility to third parties, including the Philippine Navy which wants part of the shipyard that Hanjin built in 2006.
It would provide the Philippine Navy, which is due to take delivery of new assets over the next few years, a new deep-water dock near the West Philippine Sea, and more than enough training areas in and around Central Luzon.
Cerberus could also possibly sublease a familiar docking facility to the U.S. Navy which has increased its freedom-of-navigation missions in the South China Sea.
The deal would also allow five large Philippine banks—Banco de Oro Universal Bank, Bank of the Philippine Islands, Land Bank of the Philippines, Metropolitan Bank and Trust Co., and Rizal Commercial Banking Corp.—some relief from their non-performing loans to Hanjin.
The SBMA will also get increased revenues when Cerberus resumes operations in the facility through its local partner Agila Navy.
“With this development beneficial to all stakeholders, we look forward to a robust shipbuilding and ship-repair facility to serve not only our military and coast guard requirements but also the requirements of the private sector,” Dominguez said in a statement.
Shipyard’s strategic location
The Subic freeport used to be known as US Naval Base Subic Bay, a major ship-repair, supply and rest, and recreation facility of the U.S. Navy until 1992 when its lease agreement with the Philippine government was terminated.
In recent years, the strategic location of the shipyard has been a national security concern for the Philippine government as it feared that it could be taken over by state-run companies from China, with which the Philippines has had a long-running maritime dispute over the West Philippine Sea.
The shipyard has even caught the attention of Chinese investors given its strategic location and, in 2019, the Philippine Navy made a fearful fuss with the government over Chinese interest in the Hanjin shipyard and insisted that the Navy be given a say in its disposition.
Former Navy chief, Rear Admiral Giovanni Carlo Bacordo, has previously stated that having a deep-sea harbor is a core requirement of the Navy.
However, none of the Navy’s current bases have a harbor deep enough to house its biggest strategic vessels. Its warships are currently dock at commercial ports in the country.
Bacordo said he was looking forward to the Navy docking its vessels in the shipyard’s deep harbor, which he said was ideal for large fleet ships.
The Hanjin shipyard is also close to the Naval Education and Training Command and the Philippine Merchant Marine Academy, making it accessible to Navy personnel.
Creation of new jobs
Once operations at the shipyard resume, employment in the Central Luzon region is also expected to increase and the economic impetus can offer a new possible strategic advantage to the next administration that will replace Duterte’s.
In 2015, the Hanjin shipyard in Subic became one of the top 10 shipbuilders in the world in terms of the order book which made the Philippines the fifth largest shipbuilding country in the world, largely due to the output of the Subic shipyard.
“Many of the displaced workers in the former Hanjin shipyard will also be retained, while additional jobs averaging about 300 per year from locators and subcontractors will be created, catalyzing growth in Central Luzon and the rest of the country,” Dominguez said.
He congratulated Cerberus, the Philippine Department of Defense, Philippine Navy, the banks, and the SBMA “for striking a deal that will benefit each of the partners and, more importantly, will benefit the Filipino people.”
According to Foreign Secretary Teodoro Locsin Jr., “there is no better finale to all the work done to strengthen the ties with the U.S. than to see the ink on the paper of the biggest public-private partnership in the 75-year history of Philippine-U.S. relations.”
For his part, Philippine Ambassador to the United States Jose Manuel Romualdez said that the deal would build “a stronger partnership founded on deeper friendship and mutual respect between the two countries.”
“I cannot thank everyone enough for your valuable contributions, knowing that it had not been easy putting this project together and making it happen. With the conclusion of the agreements, I am hopeful that this project will bear the fruits of our efforts for generations to come,” Romualdez said.
All photos credit: Hanjin Heavy Industries & Construction-Philippines.