Korea Identifies Potential Targets to Acquire HMM in Privatization

Korea has quietly begun exploring the steps to privatize the country’s largest shipping company HMM. According to reports in the Korean media, the state-run Korea Development Bank met with potential candidates it had identified that could provide beneficial strengths to the company as it continues its recovery and embarks on a long-term growth strategy.

According to sources cited by The Korea Economic Daily in an exclusive report, the state bank is exploring Korean conglomerates that could strengthen HMM while also benefitting from synergies with the shipping company that operates containerships, dry bulk carriers, and tankers. Among the candidates reportedly identified is Hyundai Glovis, the logistic arm of Hyundai which operates vehicle carriers, as well as Korean steel manufacturer POSCO. POSCO had previously been in the shipping business before selling its operation to Hanjin.

Other possible candidates being cited by the media include two Korean logistic companies, CJ Group and LX Group, which operates an express cargo business. SM Group is also being named after its SM Merchant Marine acquired shares of HMM. As of July 2022, reports indicated that SMM held just over six percent of HMM’s shares, although the company said it was only an investment and that it was not planning to acquire the larger shipping company.

HMM’s largest stockholders are a series of government-controlled institutions that were involved in the 2016 financial rescue of the company that was then known as Hyundai Merchant Marine. Korea Development Bank holds nearly 21 percent of the stock, while the Korea Maritime Promotion Corporation holds a further position of approximately 20 percent. Collective the government institutions hold approximately 45 percent of the stock.

Complicating any potential transaction, however, are bonds issued by HMM. They could be converted into the equity at which point the government institutions would own approximately three-quarters of the stock. The Korea Economic Daily is quoting analysts that suggested HMM might use some of the cash recently generated from the strong container market to repurchase a portion of the bonds to reduce the overhang on the company.

Earlier in the year, KDB’s management was quoted as saying that with the recovery of HMM’s business that the time was right to begin to explore the privatization of the shipping company. HMM returned to profitability in 2020 after 21 consecutive quarters of financial losses and has posted strong profits due to the surge in the container markets. In the first nine months of 2022, HMM’s revenues were 61 percent year-over-year while net income was up 225 percent. However, like other major shipping companies, profits declined between the second and third quarters of 2022 as freight rates tumbled across most of the company’s markets.

KDB’s management is believed to be anxious to begin the privatization process for HMM while the container market was strong. The news reports cite bank officials saying that they would likely reduce their position through a series of transactions over time. Officials at Korea’s Oceans and Fisheries Ministry however have said there is no rush to sell the investment in HMM citing the need to ensure that the company is on a solid footing. Recently, the Korean government indicated that it would take steps to support the container shipping industry and mostly the smaller, domestic carriers as the market slows and freight rates continue to fall. The government is reportedly anxious to prevent financial collapses that lead to the rescue of HMM and the bankruptcy of Hanjin Shipping. 

HMM in July 2022 mapped out a plan to invest approximately $11 billion for further expansion of its operations. The strategy calls for a nearly 50 percent growth of container capacity to 1.2 million TEU as well as a 90 percent growth in the dry bulk fleet to a target of 90 ships. In addition to investments in digitalization, HMM said it would also secure logistics infrastructure, such as terminals in key locations, to reinforce its profits.

The media reports indicate that KDB has been meeting with the candidates to explore the steps for a possible privatization of HMM. Bank officials however deny that any specifics have been established and said a plan would be developed in consultation with the government.