Korea Begins Process to Set Strategy to Privatize HMM

HMM privatization
South Korea's government is seeking advisors to set the privatization strategy for HMM

Published Mar 3, 2023 11:22 AM by The Maritime Executive

South Korea’s state-owned financial institutions are beginning the process toward the privatization of the country’s largest shipping company, HMM. There has been broad speculation for more than two years that the government was seeking an exit strategy based on the improved financial health of the carrier.

Korea Development Bank and the Korea Ocean Business Corporation, both government institutions and the two largest shareholders in HMM, placed a request for proposals to launch an advisor group for the sale of their HMM shares. The process is open till March 20 with the institutions saying the committee would be selected by March 22. The declared objective is to provide comprehensive advice on the overall sale process, including consulting to establish the sale strategy.

Then known as Hyundai Merchant Marine, the company’s financial troubles began in 2013 during a severe downturn in the shipping markets. KDB and the other government institutions stepped in and in 2016 a voluntary agreement was reached under which the institutions began a series of debt-to-equity swaps to restore the financial stability of the shipping company. KDB currently holds just over 20 percent of HMM’s stock while KOBC holds just under 20 percent. Other entities including the National Pension Service and Korea Credit Guarantee Fund hold smaller positions collectively bringing the government’s interest to 52 percent of HMM’s stock.

Driven in part by the strength of the shipping industry, HMM was able to restore its financial health by renegotiating charter agreements while moving forward with a fleet modernization and expansion program. The carrier was a leader in the introduction of ultra large container vessels launching a class of 24,000 TEU ships, followed by a class of 18,000 TEU vessels. This year, HMM announced an order for nine methanol-fueled 9,000 TEU container vessels as part of an $11 billion expansion strategy mapped out in July 2022.

HMM reported strong financial results for 2022 with a record-high profit of $7.8 billion representing a better than 88 percent year-over-year increase. Revenues topped $14 billion. The strength of the container market and the emerging rebound for crude oil tankers also helped the company to dramatically reduce its debt with the debt-to-equity ratio dropping from over 72 percent to 25.6 percent.

Analysts believe the government is anxious to commence the sale because of the softening in the freight markets as well as looming deadlines regarding additional debt and the shipping line’s bonds. HMM issued convertible bonds between 2018 and 2020 to KDB and KOBC. The interest rate on the bonds is due to double in October 2023 while if they were converted the financial institutions’ stake would increase to nearly three-quarters of HMM’s equity.

Korea’s Ministry of Oceans and Fisheries had previously suggested that the strategy might be a phased sale reducing the government's position either by selling the stock or the bonds. Speculation has centered on Korea’s other shipping companies including Hyundai Glovis and SM Merchant Marine as well as various logistics companies as the possible acquirer.

Banking officials told BusinessKorea “Once the advisory group is formed, we will discuss overall strategies and then set a practical schedule for the sale of HMM through consultations with related organizations.” 

KDB and KOBC said in their statement that they have continued discussions of various methods for sustaining the growth of HMM and are forming a consensus on the process of selling the management rights for the company. Last year, Korea Development Bank undertook a similar process deciding to sell management control of shipbuilder Daewoo Shipbuilding & Marine Engineering through a partial sale to Hanwha Group along with a recapitalization of the financially troubled company.