Korea’s smaller shipping company SM Line ended months of speculation confirming that it plans to attempt a takeover of the much larger HMM when the shipping company officially goes up for sale. In an exclusive interview with The Korea Economic Daily on Wednesday, SM Group Chairman Woo Oh-hyun confirmed his intentions to bid for the container carrier.
Incorporated in 2016, SM Line acquired assets including the route to the United States from the failed Hanjin Shipping Co. The operation was rebranded SM Line in 2018 and today according to Alphaliner ranks as number 26 in the list of the top 100 carriers. SM Line owns 12 ships and has three more under charter with a total capacity of just over 68,000 TEU. The company lists its largest ships as 80,000 dwt vessels with a capacity of 6,655 TEU.
The much larger HMM is currently ranked as number nine by Alphaliner owns 37 ships and has another 35 on charter. Its total capacity is over 790,000 TEU. The company is also moving forward with fleet modernization efforts with another 26 containerships on order. The company, which also has tankers and bulkers as well as a small number of heavy lift vessels, mapped out in 2022 an aggressive growth plan.
Speculation has been centering around SM Group’s intentions for more than a year since it first became public that they were buying shares of HMM’s stock. The initial investment was just 60,000 shares in December 2021 but at the time the company said it was only an investment denying rumors that it was posturing for a takeover. By mid-2023, SM Group held over five percent of HMM’s shares and then made a further purchase reported in a filing at the beginning of July. SM Group is now the third largest investor in HMM holding over 6.5 percent of the stock.
HMM’s two largest shareholders are the state-run Korea Development Bank (KDB) and state-controlled finance group Korea Ocean Business Corp., each of which holds approximately 20 percent of the stock since the 2016 government-led bailout of the former Hyundai Merchant Marine. The prior company collapsed during the prolonged downturn in the container shipping markets.
SM Group told The Korea Economic Daily that it is prepared to bid up to approximately $3 billion for HMM when the sale is officially launched. Earlier this year, the government institutions formed an advisory committee to explore the best means of privatizing the shipping company. There has been speculation in South Korea for over two years that the government banks were looking for a route to return the shipping company to private control. This comes after they privatized their investments in the shipbuilding sector, including the sale and recapitalization of Daewoo Shipbuilding and Marine Engineering to Hanwha Group, completed earlier this year.
The smaller shipping company reports it has cash and investments as well as bank lending lined up for nearly $3.5 billion. Based on their assessment of HMM, that is the maximum fair price and they told the newspaper they would drop out if the price exceeds that threshold by even a single won.
Challenging the terms for the private investment in HMM are convertible bonds which continue to overhang the market. HMM issued the bonds to raise capital after the initial bailout and today they are mostly held by the two banks. If they were to convert the bonds, the bank’s ownership share would jump from the combined approximately 40 percent to nearly 75 percent, making the deal untenable according to the executives of SM Group. KDB has also acknowledged the challenge created by the convertible bonds suggesting the deal could be done in stages and charging the advisers to develop the best plan to attract private investments.
SM Group, which is Korea’s thirtieth largest conglomerate also has investments in construction and other businesses. They believe the opportunity exists to leverage HMM to become Asia’s largest shipping company. However, they raised the possibility of exiting the shipping business if they are not successful in their bid for HMM.
The Korean banks are yet to announce the planned structure of the offering or a timeline for the sale of the stakes in HMM. Further complicating the planning is the downturn in container shipping after the surge during the pandemic. The changes in the shipping and financial markets also prompted the private investors that own Hyundai LNG Shipping to delay a planned sale of that company. HMM had entered the bidding to acquire its former LNG shipping unit as part of the group’s growth plans.
