A major corporate bankruptcy in the Philippines sparked concerns in the country regarding the possibility of the Subic Bay former US Naval base falling under Chinese control. Philippine officials are reportedly looking at ways to take over the shipyard to prevent Chinese companies from purchasing the site.
CNBC reported that officials, even the defense secretary expressed concerns of an increased Chinese presence in the South China Sea area, even if it would be a commercial one.
“Hanjin Heavy Industries and Construction Philippines has been operating an industrial shipyard in Subic Bay for years. But the company, a shipbuilding unit of South Korean firm Hanjin Heavy Industries and Construction, declared bankruptcy in January after defaulting on loans of over $400 million from Philippine banks. It is believed to be one of the largest corporate defaults in Philippine history and puts thousands of local jobs at risk,” CNBC reported. In addition the company has $900 million in outstanding loans to South Korean lenders.
Hanjin Philippines asked the Manila government for assistance in finding investors to take over the shipyard operations and help its staff, the official Philippine News Agency reported.
Defense Secretary Delfin Lorenzana disclosed the information, but said there is still a lack of information regarding the matter.
“We still lack complete information about it so I will defer any comment. Anyway, our economic managers are looking into it. (It) would be good if a local company would acquire and operate it to support our Navy modernization,” Lorenzana said.
The defense chief, however, said dealing with the matter is still up to the country’s economic team.
“Yes, that was the suggestion I made to (Finance) Secretary (Sonny) Dominguez. It (is) up to them to decide but that is the ideal set up,” the Defense Secretary said.
According to Subic Bay Metropolitan Authority, HHIC-Phil filed a petition on January 8th at the Regional Trial Court in Olongapo City “to initiate voluntary rehabilitation under Republic Act 10142, otherwise known as “An Act Providing for the Rehabilitation or Liquidation of Financially Distressed Enterprises and Individuals.”
The Subic Bay base, which is located 100 km northwest of Manila Bay used to be operated by Spain and the US and was one of the largest US naval facilities. After being closed in the early 1990s it was transformed into a special economic zone by the Philippine government.
Two Chinese shipbuilding firms — one of which is state-owned — have expressed interest in taking over the shipbuilder.
Defense Secretary Lorenza also said Manila was looking to purchase more ships in the next decade, and it would be advantageous for it to have the shipyard under its control.
“The most critical external security challenge for the Philippines is the territorial and maritime claims in the South China Sea,” Lorenzana said. “Compounding the issue is the backdrop of a rapidly evolving regional environment, where the United States-China geopolitical rivalry is deepening and a potential Taiwan Strait conflict is brewing.”
He noted that Washington remained the Philippines’ “only treaty ally” despite Duterte’s military pivot to China since he became president in mid-2016.
“China, our big, next door neighbor, has occupied and militarized some features closer to our shores,” the defense secretary said. “We have not, and we will not, surrender any part of our territory.”
Companies from the U.S., Australia, Japan and South Korea have also expressed interest, according to Lorenzana, who suggested that Manila could also lease a majority stake to an external entity while keeping a minority share.
On January 12th, Alexander Pama, a retired Philippine navy vice admiral and former Navy chief between 2011-2012 expressed his concerns over the possibility of China acquiring Subic Bay in a Facebook post.
“Let’s be aware that this Hanjin shipyard issue is not just about business, financial and other economic issues. This is a VERY SIGNIFICANT NATIONAL SECURITY ISSUE!”
“The ownership of Hanjin shipyard in Subic bay will give the owners unlimited access to one of our most strategic geographic Naval and Maritime asset. Although it is a commercial shipyard, nothing can prevent the owners from making it into a de-facto Naval base and a maritime facility for other security purposes!” Pama added.
A presidential spokesman said January 14th that such reports were still “speculations,” and that if a Chinese company the government has dealt with before assumes control “there’s no issue with it.” If it’s a different company, the spokesman added, “we have to vet.”