Race to buy Korean shipping giant HMM draws heated competition among bidders

[Photo by Han Joo-hyung]

The acquisition battle for HMM Co., South Korea’s largest shipping company, is heating up with SM Group, Harim Group, Dongwon Group, and now Global Sae-A joining the fray.

According to industry sources on Thursday, Global Sae-A is in contact with a major private equity fund (PEF), given that it needs around 5 trillion won ($3.9 billion) for the acquisition.

HMM’s acquisition is seen as an opportunity for any buyer to significantly boost its ranking among Korean conglomerates, potentially reaching levels comparable to Kakao Group ranked 15th with business valued at 34.21 trillion won.

Samsung Securities Co., the deal’s lead manager, is accepting preliminary bids until August 21, after which a shortlist of companies will proceed to the final bidding stage.

The success of HMM’s acquisition depends on the financial strength of the potential buyers.

Market observers believe Harim Group is somewhat ahead in terms of its cash reserve and potential collaboration with financial investors.

Harim Group had successfully turned around troubled shipping company Pan Ocean through a joint acquisition in 2015 with JKL Partners. Harim Group holds cash assets of 1.18 trillion won as of March.

SM Group seems able to mobilize up to 1 trillion won from its subsidiaries, mostly acquired through mergers and acquisitions. However, SM Group is offering 4.5 trillion won for the acquisition of HMM, so any amount over that will have to be borrowed to meet the price.

Dongwon Group boasts relatively lower cash assets at 474.9 billion won, but its advantage lies in the possibility of cooperation with Korea Investment Group. Although rooted in Dongwon Group, Korea Investment operates independently and could provide financial support technically.

As for Global Sea-A with 231.6 billion won in cash assets, it is exploring cooperation opportunities with financial investors. If it teams up with IMM PE, as rumored, Global Sea-A is likely to emerge as a strong candidate for the acquisition, with potential synergies with Hyundai LNG Shipping owned by IMM PE.

Other contenders like LX Group’s LX International, with 1.32 trillion won in cash assets, have yet to progress as far as other potential buyers in their discussions on acquisition strategies.

The treatment of HMM’s remaining perpetual bonds after the planned sale by its majority shareholder Korea Development Bank (KDB) is another variable that will impact the success of the acquisition.

Among the 2.68 trillion won in perpetual bonds held by KDB and the Korea Ocean Business Corporation, 1 trillion won worth of convertible bonds (CB) and bond with warrants (BW) will be converted into shares upon completion of the M&A deal, meaning 1.68 trillion won worth of perpetual bonds will remain.

KDB aims to minimize the impact of this transaction on the stock market and is actively seeking cooperation from potential buyers to handle these bonds.

The selling party will decide step-by-step on the conversion of the remaining perpetual bonds based on HMM’s exercise of its redemption rights, and in this process, the conversion of shares will be discussed and agreed upon with the acquiring party, according to a person familiar with the bid.

Some speculate that the slump in ocean freight rates over the past year could pose a challenge to the deal. Others argue that current freight rates have merely normalized to pre-pandemic long-term averages, suggesting that the previously abnormal rate hikes are no longer a hindrance.