HMM Privatization: Bidding kicks off for South Korea’s flagship carrier

The bidding process for the privatization of South Korea’s flagship carrier HMM was officially launched on Thursday in South Korea.

The move was confirmed by HMM in a regulatory filing saying that the company’s largest shareholders, government-run banks, Korea Development Bank (KDB), and Korean Ocean Business Corporation (KOBC), opened the bidding process.

The move follows the establishment of an advisory group earlier this year which established that the privatization of the company was feasible to be launched this year. The banks hope that a South Korean conglomerate would be able to take over the company and complete its revitalization process.

Some of the potential candidates that could take HMM private are large conglomerates like Hyundai Motor, Posco, and investment companies such as SM Group.

In line with the bidding process, KDB is selling 101.19 million shares and KOBC is selling 97.59 million shares in the shipping company.

Under the plan, the banks want to convert HMM’s convertible bonds and bonds with warrants, which are worth 1 trillion won ($786.8 million), into 200 million shares. The aim is to sell these shares along with the 40.65% controlling stake the banks hold in HMM.

As a result of this conversion, the total number of issued shares in HMM will increase to 689.03 million, and the combined stake held by KDB and KOBC will be 57.87%, or 398.78 million shares.

KDB said that they plan to sell all their shares in HMM, including the converted ones, but they are open to selling a part of the stake if a potential buyer requests it.

To participate in the bidding process, potential bidders must qualify and submit their preliminary bidding proposal by August 21. The advisory group will then assist in selecting a preferred bidder, leading to final negotiations with that candidate.

When approached for a statement on what privatization might mean for the company’s future, HMM could not provide Offshore Energy with any specific comments due to the ongoing privatization procedures.

Analysts anticipate that the sale may encounter challenges due to the bank’s holding structure and the recent downturn in the container shipping market.

HMM was bailed out by the Korean government in 2016 due to a prolonged downturn in the container market. Since then, the two banks collectively hold around 40 percent of HMM’s outstanding shares.

Having undergone recapitalization and fleet modernization efforts, Hyundai Merchant Marine was rebranded as HMM and resumed operations in 2021.

Despite returning to profitability during a surge in shipping volumes in recent years, HMM’s foresees challenges ahead as the market normalizes. The decline in freight rates and volumes is expected to cause profits to drop by as much as 80 percent in 2023, projecting operating profits to be around $1.3 billion.

Fleet rejuvenation and decarbonization have been high on the company’s agenda since.

Some of the most recent announcements saw HMM invest in nine 9,000 TEU methanol-fueled containerships.

The vessels will be built by Hyundai Samho Heavy Industries (HSHI) and HJ Shipbuilding and Construction (HJSC).

The order is part of the shipping major’s future growth strategy, which has earmarked $11.3 billion for future investments. These include the expansion of eco-friendly ships from the current 820,000 TEU to 1.2 million TEU by 2026.

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To achieve the target, the company is looking into a range of sustainable energy sources, including methanol, LNG, hydrogen, green ammonia, and even nuclear power for ships and the potential production of hydrogen.

HMM has been investing heavily in LNG as a potential bridging fuel for its vessels and in 2021 the company welcomed into the fleet the first of eight LNG-ready 16,000 TEU containerships, HMM Nuri.

The delivery was followed by a contract with DSME and HHI for twelve 13,000 TEU container vessels, worth $1.57 billion. Under the agreement, DSME and HHI will build six vessels, respectively, scheduled for delivery in the first half of 2024. All ships will be installed with hybrid scrubbers and designed to be LNG-ready.

Most recently, HMM has expressed interest in reacquiring an LNG carrier, although the private investment firm has decided to postpone the proposed sale for at least a year.

The move is linked to the potential diversification of HMM and its shipping portfolio as the company is heavily reliant on the container sector. The container shipping sector is known for its cyclicality and volatility. In that respect, the LNG shipping market is anticipated to experience significant growth amid the ongoing Russia-Ukraine conflict, further bolstering the allure of this potential acquisition for HMM.