By In-Soo Nam and Costas Paris

SEOUL -- Shipping operator Korea Line Corp. won a contest for some assets of bankrupt Hanjin Shipping Co., whose collapse in late August stranded billions of dollars in cargo at sea, disrupting supply chains world-wide.

In a surprise decision, a Seoul court on Monday awarded Korea Line, a midsize bulk-shipping operator, the first right to purchase the assets of Hanjin's Asia-U.S. route, as well as its stake in a California terminal.

A judge at the Seoul Central District Court, which is handling Hanjin's insolvency proceedings, said it chose Korea Line over Hyundai Merchant Marine Co., which had been expected to win. Hyundai Merchant was backed by senior government officials and its main creditors, which said they would promote the company as the country's largest oceangoing carrier.

"Korea Line proposed better terms, including higher prices," the judge said. "It also offered to take over more Hanjin employees."

The court aims to approve a contract next week with Korea Line, an operator of dry bulkers and liquefied-natural-gas carriers, and complete the sale process by the end of November, the judge said. Neither the court nor Korea Line would reveal the value of the deal, but local media reports put the sale price at up to 250 billion won ($214 million). Hanjin declined to comment Monday.

The agreement comes at a time of alliance-building and consolidation in the shipping industry, as two years of rock-bottom freight rates propel some operators into bankruptcy and others to seek partnerships to stay afloat.

Japan's three largest shipping companies -- Nippon Yusen KK, Mitsui O.S.K. Lines Ltd. and Kawasaki Kisen Kaisha Ltd. -- said last month that they would merge their container-shipping operations.

Despite the weak industry conditions, Korea Line and Hyundai Merchant have been seeking to expand their fleets. The Hanjin assets include five container ships, a business network and the workforce involved in running the trans-Pacific route, as well as a 54% stake in Total Terminals International LLC, which runs Long Beach Terminal in California.

About two-thirds of Korea Line's revenue of 532 billion won last year came from its bulker business, according to its website, while tankers and other businesses accounted for the rest.

People with knowledge of the matter said the deal involves Korea Line buying five Hanjin ships that can move 6,500 containers each.

"It will bethe first foray into container shipping for Korea Line," said Lars Jensen chief executive of SeaIntelligence Consulting in Copenhagen. "The ships they bought are just enough for one weekly service from Asia to the U.S. west coast but that market is already very competitive and winning contracts will be a challenge."

The agreement comes at a time of alliance-building and consolidation in the shipping industry, as two years of rock-bottom freight rates propel some operators into bankruptcy and others to seek partnerships to stay afloat.

Hyundai Merchant Marine, South Korea's largest shipping line since Hanjin's collapse in August , is looking to join the world's largest container-shipping group, the 2M alliance, which comprises A.P. Moeller-Maersk A/S's Maersk Line shipping unit and Mediterranean Shipping Co.

Mr. Jensen said HMM's failure to buy Hanjn's ships doesn't diminish its chances to join the 2M alliance which has a dominant position in Europe to Asia trades with a 36% market share, but only controls 19% of transpacific trades compared with 41% controlled by the Ocean Alliance and 28% by The Alliance, which are both made up of European and Asia operators,

2M executives said they would have preferred HMM buying the Hanjin ships but even without them, the Korean company would boost 2M's market share in Asia to U.S. trades by a minimum three percentage points.

"It's a cutthroat race to win market share, so 3% is not negligible," one executive said.

Apart from the five container ships, Hanjn's trans-Pacific assets include a 54% stake in Total Terminals International LLC, which runs Long Beach Terminal in California. People involved in the matter said Hanjin is in talks with MSC to sell the terminal's operations.

HMM described as worrisome the decision to allow a much smaller company to acquire the Hanjin assets, but said it respected the court's judgment. "If we're given another chance to buy other assets of Hanjin later, we'll surely bid for them," the company said. "We're also interested in other terminals operated by Hanjin."

The asset sale heralds the beginning of the end for Hanjin, which filed for receivership Aug. 31. Once the world's seventh-largest container operator by capacity, the company is under court order to cut its workforce and dispose of assets such as ships and terminals.

Many brokers expect Hanjin eventually to be liquidated or reduced to a much smaller regional operator.

Write to In-Soo Nam at In-Soo.Nam@wsj.com and Costas Paris at costas.paris@wsj.com

(END) Dow Jones Newswires

November 14, 2016 09:40 ET (14:40 GMT)

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