In the heart of South Korea, a corporate rebirth is in the cards with the commencement of the bidding process for privatizing HMM. The prime stakeholders, government-owned banks, express that they aspire to ensure the handover to a powerful South Korean conglomerate capable of fostering the ongoing renovation of the company.
Earlier in the year, the Korea Development Bank alongside the Korean Ocean Business Corporation appointed an advisory panel to facilitate the sale of the government’s shares and taking the reins of HMM. A collective agreement was reached among the advisors that 2022 was indeed the ideal time for HMM’s sale, according to a press briefing.
From Hyundai Merchant Marine to HMM
KDB held firm in its belief that the current climate was optimal for shifting the primary ownership from the government, which rescued the carrier amidst a prolonged slump in the container market in 2016. The company underwent unprecedented restructuring, including capital infusion and the launch of fleet modernization endeavors. The offshoot, Hyundai LNG Shipping, was acquired by a private investment group, paving the way for the birth of HMM in 2021.
With HMM brandishing an impressive ranking of eighth in global capacity, it showcases a fleet of over 70 vessels and nearly 800,000 TEU capacity. The company also operates an array of crude oil and chemical tankers alongside dry bulk carriers.
The Intricacies of the Sale
Collectively, the two central banks hold a sizable amount of around 40 percent of HMM’s outstanding shares. The proposed plan is to transfer them all within a single bid. The banks also own perpetual bonds and warrants convertible into supplementary shares. It is contemplated that some of these will be converted and included in the sale, while the rest will be sold gradually, working in collaboration with the acquirer to minimize market repercussions.
Potential bidders must meet specific qualifications to participate in the bidding process and are allowed until August 21 to furnish their preliminary bidding proposal. The advisory group steps in to select the preferred bidder, paving the way for final negotiations.
Speculations and Consequences
Conglomerates like Hyundai Motor, steel heavyweight Posco, and numerous investment companies have found themselves at the center of speculation. Notably, SM Group has expressed potential plans to bid around $3.5 billion intending to forge Asia’s leading carrier by merging HMM with their smaller SM Line.
It is expected that the sale process could turn complex due to the intricate nature of the banks’ holdings and the recent dip in the container shipping market. A full conversion of the banks’ bonds and warrants to shares would result in a skyrocketing price, which could deter potential buyers and force an exodus from the bidding.
HMM’s Future Prospects and Plans
Despite the decline in freight rates and volumes, HMM’s surge in shipping volumes over the past few years led to a hefty profit of approximately $7.8 billion in 2022. However, it is anticipated that operating profits may see an 80% drop to around $1.3 billion in 2023.
Additionally, HMM’s recently announced five-year plan detailing $11.4 billion worth of investments is looking to bolster container capacity to 1.2 million TEU and nearly double its dry bulk capacity. With orders already in for 26 new containerships, an apparent increase of a third in capacity is predicted. HMM has also shown interest in repurchasing the LNG carrier, but the private investment firm has chosen to postpone a prospective sale for a year.
