KDB reaches out to Hyundai, POSCO, CJ, LX on HMM stake sale

State-run Korea Development Bank (KDB) has contacted major conglomerates including Hyundai Motor Group about the sale of its stake in HMM Co., the country’s largest container line, to recover taxpayers’ money injected into the company.

KDB was known to be in touch with the leading South Korean automaker’s logistics unit Hyundai Glovis Co., the world’s sixth-largest steelmaker POSCO, CJ and others to sell HMM’s management rights, according to the government and industry sources.

With LX Pantos Co., the logistics unit of South Korea’s LX Group, the state bank agreed to look into the feasibility of the stake sale, checking the company’s financial capabilities and other issues.

HMM, formerly known as Hyundai Merchant Marine, was taken over by KDB in 2016 after the company accumulated huge losses amid an industry slowdown. KDB currently owns 20.7% of HMM as its largest shareholder, followed by state-run Korea Ocean Business Corp. (KOBC), which holds a 20% stake.

KOBC plans to hold a stake in HMM on the condition that it will not interfere in its management.

“We plan to sell KOBC’s HMM stake in stages but maintain a significant holding,” said an official at the Ministry of Oceans and Fisheries. “We will decide later whether to completely exit from HMM.”

TO RECOVER TAXPAYERS’ MONEY ASAP

KDB Chairman Kang Seog-hoon is reportedly seeking to recover taxpayers’ money injected into troubled companies as soon as possible. Kang was understood to want to use the proceeds for the state bank’s businesses.

In September, KDB sold a controlling stake in Daewoo Shipbuilding & Marine Engineering Co., the world’s second-largest shipbuilder, for 2 trillion won to the country’s leading defense maker Hanwha Group.

KDB was also known to seek the sale before the global container industry’s boom burst. The sector’s competition is expected to intensify next year when a slew of new ships are delivered, hurting HMM’s profitability.

HMM has been enjoying strong profits after turning to the black in the April-June 2020 period. It had suffered a 21st straight quarterly loss since the second quarter of 2015.

CANDIDATES WITH POTENTIAL SYNERGY

KDB contacted major companies that can create synergy with the acquisition of HMM. Hyundai Glovis could become a comprehensive logistics company if it takes over the container line, for example.

POSCO will be able to carry raw materials for its own steelmaking business. The company had operated a shipping company for five years and sold it to Hanjin. But POSCO’s takeover may be restricted as the country requires shippers of large cargoes to get the review of a policy advisory committee before such an acquisition.

CJ Group also has a major logistics unit CJ Logistics Corp. while the group was known to have enough money for HMM.

PERPETUAL CONVERTIBLE BONDS

But industry sources doubted if KDB can smoothly push forward with the sale, given HMM’s high corporate value with a market capitalization of 10 trillion won ($7.4 billion).

Its perpetual convertible bonds, which make up some 30% of HMM’s stake with a current value of 3.3 trillion won, are another issue. If the bonds are converted into stocks, KDB and KOBC’s combined stake in HMM is predicted to jump to 74%.

“It would be key to know how to handle the perpetual bonds,” said an official with direct knowledge of the situation. 

Related authorities such as the Ministry of Trade, Industry and Energy, the Ministry of Oceans and Fisheries, as well as the Financial Services Commission need to prepare measures to handle the bonds to speed up the sale, industry sources said.

HMM, which has accumulated cash on the recent shipping industry boom, needs to repay the bonds, reducing the financial burden on potential buyers, they added.

“They may allow HMM to buy the perpetual bonds at face value or a small premium to accelerate the privatization,” said one of the sources. “But that could cause a controversy over preferential treatment, so related ministries need to closely coordinate.”

Write to Ji-Hoon Lee and Jung-hwan Hwang at lizi@hankyung.com
Jongwoo Cheon edited this article.