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KDB seeks to sell $2.3 bn CBs in HMM to lay groundwork for stake sale

The move is aimed at easing the financial burden for a potential HMM buyer through a block deal sale

By Jul 19, 2021 (Gmt+09:00)

Korea's top container ship carrier HMM
Korea's top container ship carrier HMM

The state-run Korea Development Bank (KDB) is seeking to sell 2.6 trillion won ($2.3 billion) in perpetual convertible bonds issued by HMM Co., the country’s largest container line, in a move widely seen as laying the groundwork for the privatization of the company.

KDB, the main creditor and top shareholder of HMM, plans to sell the 30-year bonds in phases from the second half of this year, a KDB official said on Monday.

HMM issued over 3 trillion won in perpetual CBs in 2017 to raise operating funds, and the state-run bank assumed most of the bonds. Last month, KDB converted 300 billion won in such bonds into shares and currently holds about 2.6 trillion won worth.

“The bond sale is aimed at alleviating the financial burden of HMM's potential buyer. We’re going to sell most of our bond and stock holdings, except for the stake needed for the buyer of HMM to stably maintain management rights,” said the official.

Earlier this year, the state bank renewed its bid to sell a controlling stake in HMM as the global shipping industry was experiencing its biggest boom in a decade, making it an opportune time to privatize the shipping company.

HMM, formerly known as Hyundai Merchant Marine, was taken over by KDB in 2016 after the shipper accumulated huge losses amid an industry slowdown.

Since then, more than 3 trillion won in taxpayers’ money has been injected into the shipping giant.

The KDB owns a 24.96% stake in HMM following the conversion of 300 billion won in bonds into shares in June.

KDB is the largest creditor of HMM
KDB is the largest creditor of HMM

BLOCK DEAL

The state-run bank is exploring a sale of its stake in the container ship carrier to recover taxpayers’ money it injected into the company.

According to sources, KDB is seeking an off-market block deal to sell the stake to a strategic investor to minimize any negative impact on the share price movement in the market.

For the privatization of HMM, the state bank plans to sell its stake together with the shares held by other state-invested firms. Korea Ocean Business Corp. under the Ministry of Oceans and Fisheries, has a 3.44% stake in HMM, while the Korea Credit Guarantee Fund owns 7.11% of the shipping company.

KDB may also allow its investment arm, KDB Investment, to form a consortium with interested parties to divest of its stake, the sources said.

Earlier this year, KDB Investment joined hands with Hyundai Heavy Industries Holdings Co. to acquire Doosan Infracore Co. as part of a deal to privatize the excavator firm.

However, the sale of the combined 35.51% HMM stake, including management rights, won’t likely take place until next year, given the size of the stake and the relatively high price tag.

Korea's top container ship carrier HMM
Korea's top container ship carrier HMM

RECORD EARNINGS

The stake sale attempt is tied to the strong rise in HMM’s valuation and earnings as the container shipping industry is recovering fast from the pandemic-caused downturn.

HMM is expected to post record second-quarter profit as many countries are lifting their lockdown measures, fueling a drastic recovery in freight volumes amid a shortage of container ships.

The company is forecast to post 1.6 trillion won in consolidated operating profit in the second quarter, according to market consensus.

That would be higher than the first quarter’s record 1.02 trillion won profit and an eightfold increase from the second quarter of 2020.

HMM’s successful turnaround in recent quarters is a sharp contrast to its continued loss over 20 quarters since the first quarter of 2015.

On Monday, shares of HMM finished 0.1% lower at 43,900 won, but have risen almost threefold since the start of this year.

“Potential buyers may feel burdened by the steady increase in HMM’s share price and its valuation amid the rosy shipping industry outlook,” said an official at the creditor bank.

With the resumption of business activities, global shipping costs have soared, sending the Shanghai Containerized Freight Index (SCFI) to a fresh all-time high of 4,054.42 as of July 16.

Write to Kyung-Min Kang at Kkm1026@hankyung.com

In-Soo Nam edited this article.

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