Report: HMM Sale in Jeopardy as Delays Emerge in Negotiations
The proposed sale of a controlling interest in South Korea’s largest carrier, HMM, and the eighth-largest carrier in the container segment, is reportedly encountering difficulties with reports in the Korean media that the negotiations are behind schedule and in danger of collapse. The unions have opposed the planned privatization since it was announced and now there are reports that the fluid state of the container shipping market has created additional challenges for the deal.
Korea’s two state-controlled financial institutions, Korea Development Bank and Korea Ocean Business Corporation, the long-term debtors of the company, in December, reported they had selected Harim Group as the winning bidder in the proposed sale of a controlling stake in HMM. After years of discussion, the financial institutions launched the sale process in the summer of 2023 seeking to sell nearly 58 percent of the shares of HMM as the first step in a return of HMM to private control.
Harim, a poultry company that also owns bulk shipping company Pan Ocean, offered nearly $5 billion for the controlling stake. To complete the deal, the company would have to raise significant external investments. They made the bid in conjunction with a private equity firm JKL Partners, who had also been their partner on the acquisition of Pan Ocean. When the joint bid was selected, there were already reports in the media that they had included stipulations that KDB and KOBC were rejecting.
According to the reports in the Korean media citing unnamed sources in the banking and finance community, Harim is now questioning HMM’s competitive position in the market after the announcement that Hapag-Lloyd would be leaving The Alliance for a new collaboration with Maersk. HMM, along with Ocean Network Express and Yang Ming are the other participants in the collaboration, but Harim is reportedly seeking information on the operation of The Alliance, which the reports said HMM considered confidential. The question is HMM’s ability to continue to compete in the European markets after losing the largest member of its alliance. They are also citing the European Union and UK’s decisions to later this year end the exemption from antitrust regulations for the three industry alliances.
The media reports also suggest Harim is demanding full management control of HMM. KDB and KBOC, which will continue to hold convertible bonds equal to nearly 30 percent of the company, reportedly wanted to continue to have a role in the management and the ability to name external directors. In the bid, Harim was reportedly asking for a three-year moratorium on the conversion and sale of the additional bonds and a preemptive right for new shares of HMM. They also reportedly wanted to restrict dividends to provide retained capital to fund HMM’s growth.
Harim is said to be planning a significant equity raise selling shares of Pan Ocean to help fund the HMM acquisition. JKL would also provide significant external capital, which according to the unions will weaken HMM’s financial position and ability to expand and compete. The unions fear HMM’s expansion into dry bulk would be canceled to reduce the competition with Pan Ocean.
The unions reportedly sent a letter again calling for the end of the proposed sale. They are also suggesting the downturn in the container market would lead to a loss of employment and the sale will endanger the Korean shipping industry.
After selecting Harim as the preferred bidder, the process called for completing a sale agreement. KDB reportedly wanted the sale agreement completed this month and had publicly said they expected the transaction to be completed in the spring. Neither KDB nor Harim would comment on the rumors saying that the negotiations were still ongoing to conclude the purchase agreement.