South Korean government to begin search for HMM buyer next year

HMM Sale Faces Uncertainty as Deal Terms Stumble

A roadmap for the sale of the South Korean government’s stake in flagship HMM will be unveiled by the end of the first quarter of 2022, Vice Minister of Oceans and Fisheries Eom Ki-doo said.

Eom explained that the ministry has initiated a search for a potential buyer, with the Financial Supervisory Service, Korea Development Bank (KDB) and Korea Ocean Business Corporation (KOBC).

KDB and KOBC, both state-owned lenders, are the largest shareholders of HMM, with a combined stake of nearly 45%.

However, KDB Chairman Lee Dong-gull said the policy lender will “eventually divest” its stake in the shipping line operator.

KDB’s stake in HMM began in 2016, when the bank swapped debt for equity to help the company escape bankruptcy. KOBC became a shareholder after its own creation in 2017, as part of a national strategy to revive the maritime sector.

The government has followed the practice of bailing out troubled companies, such as Pan Ocean and STX Offshore & Shipbuilding (now K Shipbuilding), through debt-for-equity swaps, but has always sold its stake after the companies recovered.

Mr. Eom said, “The roadmap includes a full-scale HMM sale process and a plan on when to convert or redeem the convertible bonds into equity.”

KDB and KOBC still hold a total of KRW2.68 trillion ($2.25 billion) of convertible bonds, which if converted into shares would bring their total stake in HMM to 71.68%.

Mr. Eom hinted that the political lenders were unlikely to convert all their bonds into shares, adding, “If you own 70% of the shares, it is difficult to find a buyer, so I think it would be appropriate to hold only 50% + 1 share.”

HMM will come under KOBC’s independent management system next year, although it is unclear what role KDB will play thereafter.

As of Sept. 30, HMM still has about $348 million in long-term debt, and there has been talk that the company should write down its debt to strengthen its balance sheet. Mr. Eom said, “To normalize HMM, we have to manage the company and build a portfolio that generates adequate profits.”

The minister said that when HMM ordered its fleet of ultra-large vessels in 2018, it was predicted that the substantial reduction in slot costs would improve the line’s profitability. This has worked out, helped by Covid-19-related logistical bottlenecks that have pushed up freight rates, he added.

Mr. Eom said, “Three years ago, it was estimated that HMM would generate at least $170 million in operating profit, with the low-cost structure of the ultra-large vessels. Adding the Covid-19 effect, HMM is making much more profit than that.”

Source The Loadstar
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