HMM Sale Faces Uncertainty as Deal Terms Stumble

HMM Sale Faces Uncertainty as Deal Terms Stumble
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The anticipated majority stake sale of Korea’s primary carrier, HMM, faces a renewed setback as negotiations between the government and the preferred bidder, Harim Group, hit an impasse over terms and conditions. The failure to finalize a sale agreement by the planned January 23 deadline has prompted a two-week delay, with a new deadline set for February 6.

Reports from local sources reveal a key sticking point in the negotiations is the conversion of government bonds into additional HMM stock, mirroring a previous dispute with rival bidder Dongwon. Harim Group has reportedly sought a five-year limit on sale terms, proposing that conditions such as restrictions on HMM’s cash dividends, the ban on selling stakes, and the government’s right to appoint outside directors would expire after this period.

Should an agreement remain elusive by the extended February deadline, there are speculations that the deal with Harim Group might face abandonment. HMM’s state owners, the Korea Development Bank (KDB) and Korea Ocean Business Corp (KOBC), had selected the Harim consortium, in collaboration with private equity firm JKL Partners, as the preferred bidder for a 57.9% stake in HMM on December 18.

Market dynamics and recent changes in carrier alliances have altered the landscape since the initial selection. The HMM seafarer and employee unions, originally expressing concerns over the sale to the relatively small Harim Group, have renewed their opposition. They argue that higher rates following the Red Sea crisis could bring fresh funds to HMM, potentially dissipating in the larger group.

Questions regarding synergies between HMM and Harim Group’s shipping activities, primarily focused on dry bulk through its Pan Ocean subsidiary, have also emerged. The withdrawal of Hapag-Lloyd from THE Alliance, in which it partnered with HMM, ONE, and Yang Ming, may further impact perceptions of HMM’s future competitiveness.

In a related development, Dongwon, initially shortlisted but later discarded as a bidder, declared its intention to take legal action if Harim Group unfairly altered the deal terms. By postponing the bond conversion, Harim Group could potentially gain three years of dividends from the bonds and secure an initially larger stake in the company. Dongwon asserts that it could have submitted a higher offer based on this approach, with the bonds holding a value of nearly USD 1.3 billion.

 

Source: Alphaliner

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