HMM officially put on sale with CB conversion shares

The privatization of South Korea’s No. 1 sea flag carrier HMM Co. has gained traction after an official announcement of its stake sale. But the deal could hit a snag due to the main creditor’s attempt to sell shares converted from perpetual convertible bonds (CB) together, which would inflate the total buyout price.     

The state-run Korea Development Bank (KDB), which is also HMM's main creditor, on Thursday announced the sale of its 101.19 million shares and state-held ship finance institution Korea Ocean Business Corp.’s (KOBC) 97.59 million shares in the container shipping company.

But KDB also announced it will convert 1 trillion won ($786.8 million) worth of HMM’s CBs and bonds with warrants (BW) into 200 million shares to sell them together with the 40.65% controlling stake.

The converted 200 million shares will swell the number of HMM’s issued shares to 689.03 million and the total up-for-grabs stake, held by KDB and KOBC, to 57.87%, or 398.78 million shares.

The sellers plan to sell all of their HMM stakes plus the converted shares, but they are open to a partial sale upon a buyer's request, according to KDB.

BETWEEN 29% AND 58%

The CB and BW conversion shares will lower KDB and KOBC’s combined stake of their existing shareholdings from 40.65% to 29%. Given this, the sellers may allow a bidder to buy stakes of between 29% and 58%.

But it remains to be seen whether such an option would draw interest from potential buyers, considering that the CB and BW conversion share sale will make HMM’s price tag higher than the price of the initial controlling 40.65% stake.

If all of HMM’s CBs and BWs, including the remaining ones held by the creditors are converted into common shares, they would amount to 536 million shares — worth about 10 trillion won based on the current market price.

Considering that the creditors’ original shareholdings are valued at about 4 trillion won, HMM’s sale price could shoot up to 14 trillion won.

SM Group, one of the potential candidates for HMM, sees a price tag of 4 trillion won —at most 4.5 trillion won — as reasonable for the shipper, its Chairman Woo Oh-hyun said Wednesday in an exclusive interview with The Korea Economic Daily.

Woo made it clear that the group will not join a race for HMM if its price exceeds 4.5 trillion won on account of the CB and BW conversion by KDB.

Though the container shipper raked in more than 10 trillion won in net income last year thanks to the pandemic-driven shipping boom, not many would be willing to buy it for 10 trillion won, industry observers have said.

BREACH OF DUTY

But the creditors maintain their stance of exchanging the remaining CB and BW holdings, worth 1.68 trillion won, with shares in the end.

They can own HMM’s common shares, currently trading at about 20,000 won apiece, for 5,000 won per share if they convert them into common shares. If they give up stock conversion, they could later be charged with breach of duty.

In view of the situation's complexity, the sellers said they'd be open to various options regarding CB and BW conversion.

KDB would convert the remaining perpetual bonds in phases after negotiations later with the future new owner of HMM, to minimize any adverse impact on the market.

The deadline to submit preliminary bids is August 21, according to KDB.

Hyundai Motor Group, LX Group, CJ Group, POSCO Group and Harim Group are touted as possible buyers, according to industry sources.

SM Group has already made it official it would join the HMM bid but the seller is said to be seeking a new owner that is a major conglomerate capable of running the shipping liner in a financially stable manner.

Write to Jong-Kwan Park and Jun-Ho Cha at pjk@hankyung.com
Sookyung Seo edited this article.