Korea’s state-owned financial institutions took a key step in the long-running effort to privatize HMM announcing they selected the bid from the parent company of Pan Ocean, the Harim Group, as the preferred bidder to acquire control of HMM. The final round of bidding took place in November as a head-to-head showdown between two Korean corporations.
“Korea Ocean Business Corporation and Korea Development Bank selected Pan Ocean and JKL consortium as the preferred negotiating party for the sale of HMM management rights,” they announced in a brief statement. Media reports are valuing the bid at $4.92 billion for nearly 58 percent of the outstanding stock of HMM or just under 400 million shares. That infers a total valuation for HMM of nearly $8.5 billion.
They now plan to enter into final negotiations for the detailed contract terms. The state-owned institutions reported they expect to complete the transaction in the first half of 2024.
It marks a key step in the decade-long effort by the government first to bail out the financially troubled Hyundai Merchant Marine and then complete the successful reorganization of the company as HMM. KDB first invested in the container shipping company in 2013 as it was lapsing into bankruptcy and three years later took control of the company in a debt-for-equity swap which also saw the establishment of the Korea Ocean Business Corporation to lead the restoration of the company.
Business units were sold including the LNG shipping company while KOBC helped to finance the construction of 20 new vessels to modernize the container operations. HMM emerged as one of the most efficient carriers including being a pioneer in the ultra large container vessel category with for a time the largest capacity boxship in the world. The efforts paid off with HMM returning to profitability after eight years in 2020 and recording large profits during the surge in container shipping between 2020 and 2022.
The Korean government wanted to keep ownership and control of HMM in Korea and the Harim Group, a food processor and the country’s largest poultry company, promised to make Korea a powerhouse in shipping. Harim partnered with a private equity firm, JKL, which will help to finance the transaction. JKL was also a partner in Harim’s 2015 acquisition of Pan Ocean.
Reports in the Korean media are that the selection committee was impressed by the management of Pan Ocean, which is one of the leaders in dry bulk shipping. About 70 percent of Pan Ocean’s operations are bulkers, but the company also has a small interest in containers, tankers, and LNG/heavy lift. They are reported to own over 100 bulkers and manage a total fleet of 300 ships. It is unclear from the reports if the plan includes merging HMM and Pan Ocean.
Media reports have raised some questions about potential regulatory concerns as the bid will need to be reviewed by the antitrust regulators. Harim will also have to leverage its finances to pay the hefty purchase price. The company has said it would sell stock and bonds and possibly some vessels.
One of the sticking points that the media reports said held up the deal is the strategy for the state’s remaining share in HMM. The bid reportedly initially contained a stipulation that KDB and KOBC would not convert their remaining bonds for at least three years. The government institutions had indicated at the beginning of the bidding process that they would work with the buyer to develop a plan for the sale of the remaining perpetual bonds. When those bonds are converted into shares, they will dilute the buyer’s position from 58 percent to just under 39 percent. Harim is reported to have withdrawn the stipulation clearing the way for it to win the bidding after scoring highly with the committee on its management and financial plan.
HMM recently highlighted that the company was moving forward with its diversification strategy as well as continuing to build its containership position. In 2023, the company ordered nine methanol-fueled 9,000 TEU containerships and three pure car and truck carriers (PCTCs). HMM also ordered four multipurpose vessels (MPVs) and recently entered into a long-term charter-out contract for four bulkers. Early in December, it was revealed that they would build at least six of the world’s largest car carriers that will be operated on a long-term charter with Hyundai Glovis.
Harim is expected to begin additional due diligence on HMM in the near year. There have been some reports in the media that the losing bidder Dongwong Group might protest the deal, but the state-owned institutions are expected to proceed with negotiations to complete the sale contract.
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