The shipping industry looks set to become the first under the knife for government-led corporate restructuring in what experts see as a test of how Korea will fix its ailing industries that have been hurt by global overcapacity and fierce competition.

This week, Financial Services Commission chairman Yim Jong-yong will meet with vice ministers from economy-related ministries to check on the progress of the restructuring of five industries -- shipping, shipbuilding, construction, steelmaking and petrochemicals.

The government’s drive for restructuring was epitomized by President Park Geun-hye’s warning Friday that companies avoiding “surgery” out of fear could face “death.”

In the latest move, the nation’s largest container ship operator Hanjin Shipping, under conglomerate Hanjin Group, said the company’s boardroom decided to seek a debt settlement agreement with creditors including Korea Development Bank on Monday. KDB said banks will review the request carefully before making a decision.

If approved by creditors, Hanjin is likely to follow similar steps taken by Hyundai Merchant Marine, the cash-strapped No. 2 shipping operator that is negotiating with ship owners to lower fees on chartered fleets. The KDB had made it clear that a cut in charter fees is a precondition for extension of debt maturity and fresh loans for HMM.

Hanjin’s self-rescue plan will also have to include Hanjin Group chairman Cho Yang-ho’s provision of his personal assets, selling of noncore assets, capital reduction and rearrangement of unsecured debt, observers said.

Finance Minister Yoo Il-ho opened the possibility of a merger between Hanjin and HMM, telling reporters “an idea that there should be two leading shipping firms (in Korea) is not permanently unchangeable.”

Korea’s two shipping firms have suffered mounting debts from expensive charter fees amid a global oversupply of ships and slowing demand in China.

Hanjin Shipping’s total debt reached 5.6 trillion won ($4.87 billion) as of the end of 2015. The company had borrowed 3.2 trillion won for ship financing.

The total debt of HMM is estimated to have reached 4.8 trillion won, with the company having borrowed 1.8 trillion won for ship financing.

Their business outlook is also grim.

Ryu Jay-hyeon, an analyst at Mirae Asset Daewoo, said in a report that the two Korean shipping operators will see their competitiveness erode in the near future, as China’s COSCO Container Lines, Taiwan’s Evergreen, Hong Kong’s Orient Overseas and France’s CMA CGM recently announced the creation of a new alliance called the OCEAN Alliance to counter the world’s No. 1 Maersk and No. 2 MSC.

Downsizing moves in other ailing sectors are likely to accelerate in the second half.

The financial regulator is to announce a list of companies for restructuring in July, after analyzing credit risks of companies that have taken out more than 50 billion won in debt from banks.

Corporate restructuring will gain fast momentum, especially after the “one shot bill” takes effect in August, easing regulations for the mergers and acquisitions processes in an industry suffering from oversupply, industry officials said.

By Kim Yoon-mi (yoonmi@heraldcorp.com)