Facing a liquidity shortage and high debt ratio, Hanjin Shipping, a listed subsidiary of Korean Air, has sold its London office building to an undisclosed real estate investment company, according to a regulatory filing.

The shipping company said that it would use the proceeds from the sale worth about 66.7 billion won ($57.4 million) to improve finances.

Industry sources say this means that Hanjin Shipping would use the cash it secured from the sale to repay its debt. It needs to refinance its debt worth over $400 million due in the first half of this year, according to news reports.

“Every year, the company goes through the same process of refinancing or rolling over its debt,” an industry source said.

The company is said to have sought loans from brokerages in the secondary market using its equities as collateral as the company was unable to secure loans from banks because of its high debt ratio, which stood at around 500 percent as of last year, well above the industry average of between 100 and 200 percent.

“This is not a good sign,” the industry source said.

A slowdown in China, in addition to decreasing oil prices that led to lower freight charges, has led to hardships in the shipping industry.

However, as Hanjin Group, whose subsidiaries include the country’s flag carrier Korean Air, is one of the big contributors to Korean exports, Hanjin Shipping is highly unlikely to default on its debt. Korean Air has a 33 percent stake in Hanjin Shipping.

The 66.7 billion won proceeds are expected to be recorded under its assets on the balance sheet with an increase in non-operating income before interest expense in the income statement.

“Much of its efforts will be put into using the proceeds to repay its debt to lower its debt ratio,” another industry source said.

By Park Hyong-ki (hkp@heraldcorp.com)