This Shipping Giant To Buy HMM But Not For Over $3.5 bn

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Credit: Export Org UK

SM Group has enough financial ammunition to buy the country’s No. 1 container shipping line HMM Co. but would not join the bid for the latter’s controlling stake if its price tag is more than 4.5 trillion won ($3.5 billion), said the chairman of South Korea’s 30th-largest conglomerate, reports The Korea Economic Daily.

Race for HMM

“[SM Group] will immediately jump into the race for HMM once its sale is officially announced,” SM Group Chairman Woo Oh-hyun said during an interview with The Korea Economic Daily on Wednesday, confirming recent market speculation about its attempt to take over the bigger rival.

“We have raised about 4.5 trillion won, including cash, cashable assets of affiliates and loans from banks.”

SM Group, the parent of HMM’s smaller rival SM Line Corp., has already launched a special team to prepare for its possible acquisition of HMM, Woo said.

“We believe a reasonable price for HMM is about 4 trillion won. We can even offer up to 4.5 trillion won but if the price goes above that level by even 1 won, we will give it up,” the chairman said.

Long term take over plan

SM Group is now HMM’s third-largest stakeholder, with a total stake of 6.56%, after the state-run Korea Development Bank (KDB) and state-controlled ship finance institution Korea Ocean Business Corp. (KOBC), with 20.98% and 19.96% stakes, respectively.

The group recently upped its holding in HMM from the previous 5.52% through SM Line and its entities, according to a regulatory filing by HMM on July 7, which triggered speculation that SM Group’s declaration of its intent to take over HMM was imminent.

SM’s stake in HMM is jointly owned by Woo, his son Woo Ki-won, SM Line and other SM affiliates such as Korea Shipping Corp., SM Hi-Plus, Woobang Construction, TK Chemical Corp. and Korea Line Corp.

In particular, Ki-won, the group’s de facto heir and its vice president in charge of the shipping business, has been steadily purchasing HMM shares in the market.

In March, KDB, the largest creditor of HMM, and KOBC embarked on a process to privatize the country’s No.1 sea carrier by selling a 40.94% controlling stake.

HMM, formerly known as Hyundai Merchant Marine, was placed under KDB in 2016 after it received 6.8 trillion won in bailout funds from the state-run bank to cover its heavy losses stemming from the prolonged shipping industry downturn.

Along with SM Line, Hyundai Motor Group, LX Group and Samsung SDS Co. were touted as potential bidders, according to industry sources.

Withdrawal from the shipping industry

But a bumpy road is expected for its sale not only because of the recent downturn in the shipping industry after the pandemic-driven boom but also its perpetual convertible bonds, which make up some 30% of its stake with a value of 2.7 trillion won.

HMM issued more than 3 trillion won in CBs and bonds with warrants (BW) in 2017 to raise operating funds, and KDB and KOBC jointly assumed most of them.

If they are converted into shares, KDB and KOBC’s combined stake in HMM is expected to jump to 74%.

“If KDB converts (HMM) CBs into shares, SM Group will not join the (HMM) bid,” said Woo, warning that the sale would fall through because other candidates share SM’s concerns about CB conversion.

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Source: The Korea Economic Daily