S.Korea kicks off privatization of top container line HMM

South Korea has started the process to privatize the country’s No. 1 container line HMM Co. by tapping advisors for the sale of the controlling stake as the government aims to recover taxpayers’ money injected into the company.

State-run Korea Development Bank (KDB), its top shareholder and largest creditor, said on Thursday it has begun selecting advisory service providers for the sale including a law firm in cooperation with the second-largest shareholder Korea Ocean Business Corp. (KOBC).

KDB and KOBC plan to form an advisory group consisting of a law firm, an accounting firm and an advisor for the sale. The shareholders are scheduled to receive applications by March 20 and announce preferred bidders on March 22, according to the Public Procurement Service.

HMM, formerly known as Hyundai Merchant Marine, was taken over by KDB in 2016 after the company accumulated huge losses amid an industry slowdown. The state-run bank provided 6.8 trillion won ($5.2 billion) to the container line.

KDB currently owns a 20.69% stake in HMM, followed by state-run KOBC with 19.96%.

HMM improved profitability as it reported record earnings last year with operating profit up 34.8% to 10 trillion won thanks to the global shipping industry boom after COVID-19.

“HMM was evaluated to have reached a normalization stage as its financial structure has improved and sales base has expanded,” said a KDB official.

HYUNDAI MOTOR, LX, SAMSUNG SDS, SM LINE POTENTIAL BUYERS

Hyundai Motor Group, LX Group, Samsung SDS Co. and SM Line Corp. were touted as potential buyers, according to industry sources. KDB last year contacted major local conglomerates including Hyundai for the sale of HMM.

But the recent fall in global freight rates may become a hurdle for the sale, while the sellers need to solve an issue related to HMM’s perpetual convertible bonds (CBs), which make up some 30% of its stake with a value of 2.7 trillion won.

While struggling to survive, HMM issued over 3 trillion won in CBs and bonds with warrants (BWs) in 2017 to raise operating funds, and the state-run bank and KOBC assumed most of them.

If the bonds are converted into stocks, KDB and KOBC’s combined stake in HMM is predicted to jump to 74%.

Write to In-Hyeok Lee at twopeople@hankyung.com
 
Jongwoo Cheon edited this article.