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.