Korean Banks Start Bidding Process to Privatize HMM
The bidding process for the privatization of HMM launched today in South Korea with the government-run banks saying that they hope the carrier will be sold to one of South Korea’s conglomerates which can continue the revitalization of the company. The Korea Development Bank and the Korean Ocean Business Corporation announced earlier this year that they had formed an advisory group to explore the sale of the government’s shares and management control of HMM.
“The advisors concluded that it was feasible to pursue the sale of HMM this year,” the banks told reporters during a briefing held today to review the offering process. KDB had previously said that it believed the timing was right to proceed with the privatization of the carrier which the Korean government bailed out in 2016 after a long downturn in the container market.
Formerly known as Hyundai Merchant Marine, the company was recapitalized and began fleet modernization efforts. The LNG shipping company, Hyundai LNG Shipping, was sold to a private investment group and the remaining operations were relaunched in 2021 as HMM. The primary business is a container carrier, currently ranked eighth in capacity by Alphaliner, with a fleet of over 70 ships and nearly 800,000 TEU in capacity. HMM also operates crude oil and chemical tankers and dry bulk carriers.
Collectively, the two banks currently hold approximately 40 percent of the outstanding shares of HMM. In the initial outline of the planned offering, they reported the shares would be sold in a single bid. In addition, the banks hold perpetual bonds and warrants to be converted into additional shares. They are proposing that they would convert at least a portion of the bonds and warrants to also be included in the sale. The remainder would be sold over time in consultation with the acquirer to “minimize the impact on the market.”
Potential bidders will need to qualify to enter the process and then will have till August 21 to submit their preliminary bidding proposal. The advisory group will help to select a preferred bidder and then the banks will commence final negotiations with that bidder.
KDB has previously said that several potential candidates had expressed interest in acquiring HMM. Speculation has centered on the large conglomerates including Hyundai Motor, steel company Posco, and investment companies. Yesterday in a news interview the CEO of SM Group said they would enter the bidding up to approximately $3.5 billion planning to merge HMM with their smaller SM Line in an effort to create Asia’s leading carrier.
Analysts have speculated that the sale will be complicated both by the structure of the bank’s holding and the recent downturn in the container shipping market. If the banks fully convert their bonds and warrants to shares it would represent as much as a 75 percent holding and increase dramatically the price, which SM Group emphasized would make the company less desirable and force it to drop out of the bidding.
HMM returned to profitability during the surge in shipping volumes in the past few years. For 2022, they reported an operating profit of approximately $7.8 billion. Management however cautioned that the decline in freight rates and volumes was expected to result in a drop of as much as 80 percent in profits projecting that operating profits in 2023 would be at around $1.3 billion.
Last year, HMM mapped out a detailed five-year strategy calling for $11.4 billion in investments. They said the plan was to grow container capacity to 1.2 million TEU and nearly double dry bulk capacity. Alphaliner reports that HMM currently has orders for 26 new containerships which would increase capacity by a third. HMM also recently expressed interest in reacquiring the LNG carrier, although the private investment firm decided to delay a proposed sale for at least a year.
Report: SM Line is Planning to Bid Up To $3 Billion to Acquire HMM
Korea’s smaller shipping company SM Line ended months of speculation confirming that it plans to attempt a takeover of the much larger HMM when the shipping company officially goes up for sale. In an exclusive interview with The Korea Economic Daily on Wednesday, SM Group Chairman Woo Oh-hyun confirmed his intentions to bid for the container carrier.
Incorporated in 2016, SM Line acquired assets including the route to the United States from the failed Hanjin Shipping Co. The operation was rebranded SM Line in 2018 and today according to Alphaliner ranks as number 26 in the list of the top 100 carriers. SM Line owns 12 ships and has three more under charter with a total capacity of just over 68,000 TEU. The company lists its largest ships as 80,000 dwt vessels with a capacity of 6,655 TEU.
The much larger HMM is currently ranked as number nine by Alphaliner owns 37 ships and has another 35 on charter. Its total capacity is over 790,000 TEU. The company is also moving forward with fleet modernization efforts with another 26 containerships on order. The company, which also has tankers and bulkers as well as a small number of heavy lift vessels, mapped out in 2022 an aggressive growth plan.
Speculation has been centering around SM Group’s intentions for more than a year since it first became public that they were buying shares of HMM’s stock. The initial investment was just 60,000 shares in December 2021 but at the time the company said it was only an investment denying rumors that it was posturing for a takeover. By mid-2023, SM Group held over five percent of HMM’s shares and then made a further purchase reported in a filing at the beginning of July. SM Group is now the third largest investor in HMM holding over 6.5 percent of the stock.
HMM’s two largest shareholders are the state-run Korea Development Bank (KDB) and state-controlled finance group Korea Ocean Business Corp., each of which holds approximately 20 percent of the stock since the 2016 government-led bailout of the former Hyundai Merchant Marine. The prior company collapsed during the prolonged downturn in the container shipping markets.
SM Group told The Korea Economic Daily that it is prepared to bid up to approximately $3 billion for HMM when the sale is officially launched. Earlier this year, the government institutions formed an advisory committee to explore the best means of privatizing the shipping company. There has been speculation in South Korea for over two years that the government banks were looking for a route to return the shipping company to private control. This comes after they privatized their investments in the shipbuilding sector, including the sale and recapitalization of Daewoo Shipbuilding and Marine Engineering to Hanwha Group, completed earlier this year.
The smaller shipping company reports it has cash and investments as well as bank lending lined up for nearly $3.5 billion. Based on their assessment of HMM, that is the maximum fair price and they told the newspaper they would drop out if the price exceeds that threshold by even a single won.
Challenging the terms for the private investment in HMM are convertible bonds which continue to overhang the market. HMM issued the bonds to raise capital after the initial bailout and today they are mostly held by the two banks. If they were to convert the bonds, the bank’s ownership share would jump from the combined approximately 40 percent to nearly 75 percent, making the deal untenable according to the executives of SM Group. KDB has also acknowledged the challenge created by the convertible bonds suggesting the deal could be done in stages and charging the advisers to develop the best plan to attract private investments.
SM Group, which is Korea’s thirtieth largest conglomerate also has investments in construction and other businesses. They believe the opportunity exists to leverage HMM to become Asia’s largest shipping company. However, they raised the possibility of exiting the shipping business if they are not successful in their bid for HMM.
The Korean banks are yet to announce the planned structure of the offering or a timeline for the sale of the stakes in HMM. Further complicating the planning is the downturn in container shipping after the surge during the pandemic. The changes in the shipping and financial markets also prompted the private investors that own Hyundai LNG Shipping to delay a planned sale of that company. HMM had entered the bidding to acquire its former LNG shipping unit as part of the group’s growth plans.
No comments:
Post a Comment