Negotiations for the final sale agreement of the controlling share of Korean shipping company HMM collapsed, raising uncertainties about the company’s future.
The talks between government-run financial institutions (controlling shareholders) and the preferred bidder, Harim Group, failed to reach an agreement on the $4.9 billion deal.
Differences in opinion on substantive management rights, particularly regarding Harim’s terms and the convertible perpetual bonds held by the institutions, contributed to the breakdown.
The disruption in the container shipping industry, declining rates, and concerns about HMM’s financial stability further complicate the situation.
The collapse of negotiations for the sale of HMM’s controlling share raises concerns about the future of the Korean shipping company. The talks between government-run financial institutions and the preferred bidder, Harim Group, failed to reach an agreement on the $4.9 billion deal.
Negotiations, which continued up to the midnight deadline, ended without an agreement on the sale of HMM’s controlling share. The controlling shareholders, government-run financial institutions, and Harim Group reported that the talks broke down due to differences of opinion on substantive management rights.
Harim Group’s Preferred Bidder Status
Harim Group was announced as the preferred bidder on December 18. Despite talks to finalize the terms extending beyond the original deadline of January 23, the final agreement could not be reached by the set deadline of February 6.
Convertible Perpetual Bonds and Ownership Stakes
A significant point of contention in the negotiations was the convertible perpetual bonds held by the government-run financial institutions, representing nearly 30% interest. These bonds, if converted in 2024 and 2025, would dilute the buyer’s 58% stake to 39%. Harim reportedly presented conditions, including a demand for a three-year moratorium on bond conversion and maintaining positions for at least five years, leading to disagreements with the Korea Ocean Business Corporation (KOBC).
Industry Challenges and Concerns
The container shipping industry’s slowdown, declining rates, and concerns about the impact of decisions like Hapag-Lloyd’s withdrawal from The Alliance and the end of antitrust exemptions in the EU and UK added complexity to the negotiation process. Korea’s unions emphasized the need for state oversight and management given HMM’s significance in the country’s economy.
Uncertain Future and Government’s Role
With the collapse of negotiations, HMM’s future is uncertain. The Korea Development Bank (KDB) and KOBC, as controlling shareholders, are uncertain about the next steps. Reports suggest that Korea’s Ministry of Oceans and Fisheries is hesitant to proceed with the sale process, calling for prudence in setting the strategy.
Privatization and Public Funds Debate
KDB had been exploring privatization for at least two years before initiating the sale process in 2023. Publicly, officials of the bank questioned the use of public funds to finance HMM, which turned profitable in 2020 after years of losses. The disappointment of large conglomerates not participating in the bidding process led to a head-to-head battle between midsize groups Harim and Dongwon Group.
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