Hahn & Co. puts SK Shipping’s tanker business up for sale

South Korean private equity firm Hahn & Co. is seeking to sell SK Shipping Co.’s tanker division, a business widely seen as the breadwinner of the SK Group affiliate.

The PEF recently hired Evercore Inc., a New York-based boutique investment banking advisory firm, and has begun contacting potential buyers, including shipping companies in Korea and abroad and infrastructure-focused global funds, according to investment banking sources on Monday.

Hahn & Co. and Evercore are already in talks with multiple companies, people familiar with the matter said.

SK Shipping’s tanker business handles crude oil transportation under long-term contracts with Korean and overseas refiners and petrochemical companies. SK counts Korean firms such as SK Energy Co., GS Caltex Corp. and Hyundai Oilbank Co. as well as Trafigura Group Pte., a Singapore-based French multinational commodity trading company, among its clients.

With 30 very large crude carriers (VLCCs), SK Shipping is Korea’s No. 1 tanker and dry bulker operator, controlling about 45% of the domestic market. SK Shipping’s tanker business accounts for a third of the company’s entire sales revenue and nearly 60% of its profits.

Industry watchers said SK’s tanker division, which has a stable business structure, would be appealing to rival shipping companies that hoarded cash during the COVID-19 pandemic.

Tanker operators often work with their clients under long-term contracts that usually last more than a decade, so are less susceptible to economic fluctuations.

HAHN & CO LIKELY TO FETCH DECENT GAINS

If successful, Hahn & Co. would fetch decent gains from the sale of the tanker business.

Hahn & Co. acquired a controlling stake in SK Shipping in 2018 for about 1.2 trillion won ($920 million). Currently, the PEF is the shipper’s largest shareholder with an 83.65% stake. SK Inc., the investment and holding company of SK Group, is the second-largest shareholder with a 16.35% stake.

SK Shipping’s tanker business posted 73.9 billion won in operating profit on sales of 366.9 billion in the first half of 2022. Its full-year profit is estimated at 150 billion-180 billion won, placing the shipper’s enterprise value at more than 2 trillion won, industry officials said.

Through the rigorous debt workout, SK Shipping’s earnings before interest, taxes, depreciation and amortization (EBITDA) have grown from 230 billion won in 2018 to 418.2 billion won in 2021. In the first half of last year, its EBITDA stood at 251.2 billion won.

Led by former Morgan Stanley banker Scott Sang-Won Hahn and former Sony Group Korea CEO Yeo-Eul Yoon, Hahn & Co. is an active player in Korea’s mergers and acquisitions market, with more than $10.5 billion in assets under management.

Hahn & Co. has been involved in several big deals in Korea over the past couple of years, including the $1.2 billion SKC Ltd. industrial film business acquisition and the sale of used-car trading platform K Car Co.

POTENTIAL BIDDERS

Industry watchers said one of the most likely bidders is Korea’s largest container shipping line HMM Co., which is in the middle of being privatized by state banks.

Formerly known as Hyundai Merchant Marine, HMM’s business portfolio had previously been evenly split between container ships and bulk carriers, including tankers.

However, the company largely disposed of its tanker business under snowballing debt. In 2016, it was taken over by the state-run Korea Development Bank (KDB) after the shipper accumulated huge losses amid an industry downturn.

HMM Chief Executive Kim Kyung-bae has said the company aims to raise its bulker carrier fleet to 55 vessels by 2026 from the current 10 to rebalance its business portfolio.

As of the end of September, HMM had 16 trillion won in cash and cash equivalents, even higher than its market capitalization of 10 trillion won.

According to investment banking officials, infrastructure-focused private equity houses would also be interested in SK Shipping’s profitable business.

Some of the big names circulated in the market include Kohlberg Kravis Roberts & Co., an American global investment company widely known as KKR & Co.; Macquarie Infrastructure and Real Assets; Brookfield Corp., a Canadian alternative investment firm; and Sweden’s EQT Partners AB, the world’s third-largest private equity firm.

Some market watchers, however, said that demand for tankers could dwindle in the long term, given declining crude oil consumption worldwide, together with the take-off of electric vehicles and eco-friendly vehicles.

Write to Jun-ho Cha and Ji-Eun Ha at chacha@hankyung.com

In-Soo Nam edited this article.