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[Interview] Shipping & Shipbuilding

SM Line sees light at the end of the tunnel: SM Group’s Woo

Known for his Midas touch, turning struggling businesses around, Woo also urged the government to act for the industry

By Oct 27, 2021 (Gmt+09:00)

SM Line container ship docked at the Port of Long Beach
SM Line container ship docked at the Port of Long Beach

When SM Group, formerly known as Samla Midas Group, took over assets of bankrupt Hanjin Shipping Co., for 37 billion won ($32 million) at the end of 2016, hardly anyone in South Korea’s shipping industry believed the new owner could make a profit from the acquisition any time soon.

The group rebranded Hanjin as SM Line Corp. in 2018 and the shipping liner has since posted a loss almost every year, bringing its total losses to some 300 billion won.

With the global recovery of shipping demand from the pandemic lows, however, SM Line posted 107.6 billion won in net profit on sales of 1.03 trillion won last year.

In the first half of this year alone, the company ran a net profit of 303.3 billion won on revenue of 707.6 billion and is widely expected to post an operating profit of 1.1 trillion won for the full year.

“We are seeing the light at the end of the tunnel. We’re now making 40 billion won a week,” SM Group Chairman Woo Oh-hyun said in a recent interview with The Korea Economic Daily. “I would say we’ve hit the jackpot following the COVID-19 pandemic.”

SM Group Chairman Woo Oh-hyun
SM Group Chairman Woo Oh-hyun


NOT THAT EASY

It was never an easy task for SM Group to turn from a loss-making company to a profitable one, according to Woo.

SM Line’s snowballing losses often affected other group affiliates’ credit ratings, making it harder for them to borrow money from banks even at higher interest rates.

“Under pressure, we had to sell six ships for 100 billion won last year. And now it will cost us more than one trillion won to buy the six ships back. It’s very regrettable,” he said.

The chairman also urged the government to act more to help the beleaguered domestic shipping industry.

He noted that unlike construction companies, local shipping firms must book their investment in vessels as debt, which often works against the shippers when they borrow money.

“After acquiring Korea Line, we once spent one trillion won building four LNG carriers, which were all reflected as debt in our financial statements. That, in turn, raised our borrowing costs to 7% from the previous 3%. We earned 140 billion won a year at the time, but we had to pay 118 billion won in interest on our borrowings,” he said.

The chairman said he asked the presidential office to change the accounting rules for the shipping industry in line with those for the construction industry, but his request was rejected.

“The government has been saying it’s trying to revive Korea’s sagging shipping industry. But I don’t see any tangible results. If the government simply believes that the current global shortage of container vessels will revive the industry, it is making a big mistake,” he said.

The chairman said the Korean Fair Trade Commission’s recent decision that domestic shipping firms have colluded to raise freight rates is excessively judgmental.

“Small local shippers’ move to survive in the industry dominated by China and Japan shouldn’t be seen as collusion. The Korean authorities need to take this into account when executing policies,” he said.

He also stressed the government’s active role in normalizing HMM Co., the country’s largest container line, if it wants Korean shippers to compete with its global rivals on an equal footing.

KOSDAQ LISTING IN NOVEMBER

Chairman Woo warned domestic shippers against becoming complacent about the reviving seaborne traffic.

“Some shipping firms are reaping a huge profit over just a few months that usually takes them a decade to make. They should prepare for the future. What goes up must come down,” he said.

Woo said domestic shipping firms need to expand their capital base as they are heavily dependent on borrowings.

To secure funds needed to strengthen its shipping capabilities, SM Line is working to list its shares on the junior Kosdaq market next month.


The company plans to list a total of 79.63 million shares on Kosdaq. Of which, some 23.9 million shares will be offered for public subscription with its indicative price range of 18,000 won and 25,000 won a share.

Its enterprise value will be set at 2.1 trillion won if the highest IPO price is taken, and through the IPO, the company aims to raise between 609 billion won and 846 billion won.

SM Line's Kosdaq listing will mark the country’s first IPO of a shipping company since the market debut of KSS Line in 2007.

NH Investment & Securities Co. is the underwriter of SM Line’s IPO.

SM Line's container boxes
SM Line's container boxes

WOO’S MIDAS TOUCH

SM Group Chairman Woo is known for turning struggling businesses around.

In 2013, he acquired Korea Line Corp., under court receivership at the time, and placed it under Samla Group. He also purchased bulk carrier Samsun Logix Corp. in 2016, which now has become Korea Shipping Corp. as another group affiliate.

Outside the shipping industry, the chairman has also taken over struggling companies such as Namsun Aluminum Co., battery maker Bexel Co. and DongAh Construction Co. and turned them around.

“Many people think that it is precarious to own a shipping company, which can collapse any time if the market condition starts to turn bad. With SM Line, I want to break the myth,” Woo said.

Since its launch in 2018, SM Line has grown its shipping operations on its Southeast Asian and American routes. In 2020, it joined hands with the world’s largest shipping alliance, 2M, to better serve its Korea-US West Coast route.

On Dec. 23, 2020, SM Line also participated in the launch of the K-Alliance, a group of five Korean shipping companies including HMM, Pan Ocean, Heung-A Line and Sinokor Merchant Marine.

SM Line operates a total of 18 ships globally.

Samla Midas Co., the holding firm of Samla Group, is SM Line’s largest shareholder with a 41.4% stake. Related companies TK Chemical Corp. and Samla Co. own 29.6% and 29.1% of the shipper, respectively.

Write to Ye-Jin Jun and Jun-Ho Cha at ace@hankyung.com

In-Soo Nam edited this article.

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