Korea's HMM creditors convert $739 mn bonds into shares

Shares of HMM Co., South Korea’s No. 1 container line, are likely to fall as its main creditors exchanged perpetual convertible bonds (CBs) and bonds with warrants (BWs) worth 1 trillion won ($739.1 million) for stocks on Friday, according to the Kospi-listed firm’s regulatory disclosure.

The creditors, state-run Korea Development Bank (KDB) and state-owned ship finance institution Korea Ocean Business Corp. (KOBC) converted the BWs worth 600 billion won and CBs worth 400 billion won into the stocks on Oct. 20, HMM said.

The conversion increased the number of issued shares in HMM by 200 million to some 689 million, raising the combined holding rate of KDB and KOBC from 40.65% to 57.88%.

On July 20, the creditors announced they will sell all HMM shares they own and the new stocks to be converted from the bonds.

Meanwhile, on Sept. 22, HMM requested the creditors to approve its early repayment of the 1 trillion won bonds as the securities’ interest rate was set to jump from 3% to 6% on Oct. 25.

But the creditors had rejected the request as they were able to acquire the share at 5,000 won apiece via the conversion. The price is much cheaper than the 14,000-16,000 won range, where the stock has remained since the request.

As the conversion has diluted the other investors’ ownership, HMM's stock price will fall in the short term, market watchers say. Since the creditors announced the sale of HMM shares three months ago, its stock price has dropped 30.7% to 14,060 won as of Oct. 20.

KDB and KOBC still hold 1.68 trillion won worth of CBs and BWs and plan to convert the securities into stocks by 2025. If they do so, the total number of issued shares in HMM will exceed 1 billion, further diluting the other stakeholders’ ownership.

If the HMM stock price drops further, the company's sale price could also fall. Three bidders – LX Group, Harim Co. and Dongwon Industries Co. – are intensifying competition to buy the shipping firm, which has been put on sale since March.  

The value of HMM’s controlling stake was estimated at 8 trillion won in the early stage of the sale process. It has fallen to 5 trillion-6 trillion won, banking sources said.

Write to Jun-Ho Cha and Jong-Kwan Park at chacha@hankyung.com

Jihyun Kim edited this article.