Korea's SM buys shipping line HMM shares ahead of bidding

South Korea’s SM Group has increased its ownership in HMM Co., the country’s top container shipping line. The 30th-largest conglomerate in Korea, which aims to buy a controlling stake in HMM, acquired more shares to boost its biggest local rival’s corporate value, market watchers say.      

SM Group’s DongAh Construction Co. bought about 500,000 shares in HMM last month and increased the group’s holdings from 6.56% to 6.66%, according to banking sources on Wednesday. The shares purchased in July valued at around 8.9 billion won ($6.9 million) based on the Aug. 2 closing price.

The group can't confirm which affiliate has acquired additional shares in HMM, an SM Group official said.

SM Group, the parent of SM Line Corp., is HMM’s third-largest shareholder following Korea Development Bank (KDB) and ship finance institution Korea Ocean Business Corp. (KOBC). The two state-run institutions own a combined 40.65% stake.   

“[SM Group] will immediately jump into the race for HMM once its sale is officially announced,” SM Group Chairman Woo Oh-hyun told The Korea Economic Daily in July. SM Group believes a reasonable price for HMM is about 4 trillion won and can even offer up to 4.5 trillion won, the chairman said at the time.

In March, KDB and KOBC started a process to privatize HMM by selling their stakes to recover taxpayers’ money poured into Korea's top sea carrier.                                                                                                                            
HMM, formerly Hyundai Merchant Marine, was taken over by KDB in 2016 after the company received 6.8 trillion won in credit from the state-run bank to cover its snowballing losses amid the shipping industry downturn.

SM Group purchased more shares last month as Chairman Woo aims to up HMM’s corporate value, industry insiders said.

KDB announced earlier this month it will convert 1 trillion won worth of HMM’s convertible bonds (CBs) and bonds with warrants (BWs) into 200 million shares to sell them together with the controlling stake.

SM Group needs to boost HMM's value as the state-run bank said the sellers are open to negotiating the details of converting the bonds, an industry official said.

Despite other potential bidders such as general trading conglomerate LX Group, seafood giant Dongwon Group and agriculture food company Harim Group, KDB seems to have decided SM Group is the strongest candidate to acquire HMM, the official added.

SM Group is likely to buy additional shares in HMM if the shipping company’s stock falls, market watchers said.

Write to Jae-Fu Kim at hu@hankyung.com

Jihyun Kim edited this article.