Creditors have decided not to bail out the debt-saddled Hanjin Shipping, a main unit of Hanjin Group.

In the wake of the banking sector’s rejection of the rescue fund, the nation’s largest container shipping firm will be pressured by the financial regulator to dispose of its viable assets to the second-largest Hyundai Merchant Marine.

Market insiders allege that Hanjin Group Chairman Cho Yang-ho had a lack of resolve to normalize the shipping firm, compared to a similar solution by Hyundai Group, in which Chairwoman Hyun Jeong-eun decided to pour her private wealth worth 30 billion won ($26.8 million) into the financially distressed HMM.

If Cho had showed a strong willingness to donate his wealth, the Hanjin Shipping creditors might have approved a rehabilitation scheme by promising bailout funds or a rollover of outstanding loans. But the plan suggested by parent Hanjin Group failed to satisfy creditors despite a funding plan led by Korean Air, Hanjin Shipping’s biggest shareholder.

The shipper needs to raise an additional 1.2 trillion won during the next year and a half to stay afloat. Hanjin Group submitted to its creditors a plan to raise 400 billion won, hoping to get additional support from them on the remainder. But the creditors maintained that the group should put up at least 700 billion won to help its troubled unit.

The burden-sharing plan that fell short of the required funding scale, as assessed by the creditors, might mean that Cho eventually chooses to abandon the unit. That choice might be unavoidable if he wants to protect the financial soundness of other affiliates such as Korean Air and Hanjin Transportation.

As a result, analysts are raising the possibility that the Financial Services Commission will eventually induce a merger between HMM and Hanjin Shipping on a mid-term basis. State regulator FSC and the state-run Korea Development Bank have already embarked on the procedure, under which HMM will acquire a certain stake in Hanjin Shipping.

The practical effects on the market could be bigger in the coming months. Regulators and creditors should prioritize minimizing the negative effects their decisions will have on Hanjin Shipping’s subcontractors and a possible knock-on effect in the ailing industry. Given that Hanjin is the seventh-largest container shipping company in the world, other smaller shipping firms in Korea could also face financial problems from falling overseas orders in a saturated market. Competition from Chinese shipping companies is also growing quickly.

Like the ailing shipbuilding industry, the shipping sector may succumb to large job losses in the coming months as massive cuts to payroll is a prerequisite for distressed companies trying to avert insolvency or liquidation.

For Hanjin Shipping, there is a high possibility that the court will order full-fledged restructuring in both the workforce and facilities.

Policymakers have to be more active in helping the shipper’s subcontractors, who played a crucial part in making Hanjin Group become one of the nation’s biggest conglomerates. To block an insolvency domino effect from spreading through its subcontractors, the government should push for a smooth transition of the workforce of Hanjin Shipping and suppliers to HMM or others.

HMM has come under creditors’ management following a debt-to-equity swap relief earlier this year. The KDB, the interim owner of HMM, is about to name a new chief executive and management team. The state bank plans to bolster competitiveness by improving a vessel operation schedule, obtaining long-term shipping contracts, and securing overseas terminals.

Whether the future scenario is the full-scale consolidation between the two ailing firms or takeovers by respective buyers, government countermeasures should be designed to regain the global competitiveness of local container carriers.