South Korea privatizes HMM in 2022
The South Korean government has confirmed that it is implementing a plan to return ownership of HMM, the major Korean shipping company, to private investors in 2022. The move will come six years after the government, through its banks, investment, or intervened to save the former Hyundai dealer. Navy goes bankrupt and follows successful government efforts earlier this year in various similar positions in midsize shipbuilders.
There has been speculation in South Korea for much of 2021 that the the government was looking for a buyer for HMM. Bank officials said work continued on a plan to sell off investments now that the shipping company has regained its stability. The plan is bolstered by the high revenues HMM, like other container ship operators, is generating during the current boom in the industry.
The Deputy Secretary of the Department of Oceans and Fisheries briefed reporters on HMM’s plans at a press conference on November 23. “The roadmap includes a large-scale sale of HMM, as well as plans for converting bonds into shares,” the minister said at the briefing. He expects the plan to be finalized by the end of the first quarter of 2022, saying the search for a suitable buyer has already started. As with previous transactions, the likely buyer will be one of the major Korean conglomerates and the government will not seek offers from international buyers.
The Korea Development Bank got involved with HIMM in 2016 when the bank struck a debt deal to save the ailing shipping company. KDB and Korea Ocean Business Corporation currently own over 40% of the shipping company’s shares in addition to significant convertible debt positions. If all convertible debt were exercised, the government, through the two banks, would hold more than 70 percent of HMM’s equity.
Eom said the plan will include a convertible debt strategy, but they are unlikely to fully exercise it at this time as it will complicate the sale. “If you own 70 percent of the stock, it’s hard to find a buyer, so I think it would be appropriate to own 50 percent plus one stock.” In June, KDB announced plans to convert more than $ 250 million in debt into shares, which would put it at just under 25% of HMM.
HMM’s rescue plan had focused on revitalizing the fleet with new, more efficient vessels to reduce operating costs. The minister said the plan called for HMM to be able to generate at least $ 170 million in operating profits with the new low-cost structure created by building the ultra-large container ship fleet. He noted that the company is on track to far exceed these projections based on the current strength of the container market.
Through the KDB, the government has followed a similar strategy to bring other companies in the maritime industry back to private investment. In 2019, they agreed to sell Daewoo Shipping & Marine Engineering to Hyundai. In 2021, agreements were reached for three of Korea’s mid-size shipbuilders, including STX Offshore & Shipbuilding as well as Hanjin Heavy Industries & Construction and Daesun Shipbuilding Engineering.
The Minister highlighted the success of the privatization of shipbuilders. Orders from K Shipbuilding, formerly STX, nearly quadrupled in 2021 with the launch of new partnerships for advanced naval technologies. Hanjin, which had no new orders in 2020, won its first commercial shipbuilding contracts in six years in 2021, and in the first nine months of 2021, Daesun more than doubled its orders.
While the government plans to continue divesting its stakes, it has also announced new plans to support the development of the shipbuilding industry. In September 2021, President Moon Jae-in is committed to ensuring that it is the overwhelming leader focused on building new environmentally friendly ships and automated technologies.