KDB launches process of selling Korean shipping company HMM

[Photo by Lee Chung-woo]

South Korea’s state-run Korea Development Bank (KDB) has embarked on the process to sell HMM Co., the country’s largest shipping company, as part of a privatization plan.

According to multiple sources from the investment bank industry on Thursday, KDB posted a sales notice on the country’s procurement portal. A total of 398.78 million shares will be sold, which is the 38.9 percent stake held by the KDB and Korea Ocean Business Corp. (KOBC) including perpetual bonds.

The KDB and KOBC formed a sales advisory team in April and decided to begin the process of selling the management control of HMM this year after consulting procedure.

This sale will be conducted through an open competitive bidding in accordance with the National Contract Act. The aim is to finalize the stock purchase agreement within the year. The remaining perpetual bonds will be gradually converted, subject to the exercise of HMM’s redemption rights.

KDB said in an official statement Thursday that it will work with the buyer to process the conversion of shares in a way that minimizes market impact.

The potential buyers for HMM include Hyundai Motor Group, SM Group, LX Group, and POSCO Group. While SM Group has expressed its intention to participate in the bidding, the Korean government is reportedly hoping for the acquisition by a large company that is capable of running HMM stably.

If the 1 trillion won ($782 million) worth of convertible bonds and bonds with warrants held by the two state-run institutions is converted into shares, the number of outstanding shares of HMM will increase to 689.03 million from 489.03 million.

KDB’s ownership will rise to 211.9 million shares (29.20 percent) from 111.9 million shares (20.69 percent) and KOBC’s ownership to 28.68 percent from 19.96 percent. The market expects the sale price of HMM to be around 5 trillion won, taking into account the management premium.

The market also raised the possibility that KDB could give the buyer the option to purchase the stake at the buyer’s request, but the state-run bank made it clear in the statement that the principle is to sell the entire stake in a lump sum.

KDB also reportedly takes the position that the remaining 1.68 trillion won in perpetual bonds will basically be converted into shares.

The prevailing view in the industry is that forgoing the opportunity to acquire HMM stock, which trades at around 20,000 won, would be tantamount to a breach of trust, as it can be acquired for 5,000 won per share through the conversion of perpetual CB and BW.

However, KDB plans to keep its options open and review them depending on the future direction of HMM’s stock price.