Dongwon Group explores IPO for 3 subsidiaries to finance HMM bid

Dongwon Group headquarters. [Courtesy of Dongwon Group]

To prepare for the upcoming competition to acquire South Korea’s top shipper HMM, bidderDongwon Group has initiated plans to consider initial public offerings (IPOs) for three of its lucrative unlisted subsidiaries.

Dongwon Group, with its diverse business interests, aims to secure the substantial capital required for the anticipated HMM acquisition, which is expected to cost about 5 trillion won ($3.77 billion). To achieve this goal, the conglomerate plans to assess the corporate value first and then embark on pre-IPO efforts, such as attracting investments before listing, and liquidating family owners’ stakes in several companies.

According to industry sources on Sunday, Dongwon Industries, the holding company, is currently contemplating IPOs for three of its wholly owned subsidiaries: StarKist, the largest tuna canning company in the United States, and Dongwon LOEX, a comprehensive logistics company. It is also reported that Dongwon F&B, which is owned by Dongwon Industries, is considering an IPO of its subsidiary Dongwon Home Food.

Given that the IPO process typically takes several years to complete, Dongwon Group is expected to secure M&A funding via pre-IPO measures as a preliminary step. These subsidiaries, which are now potential candidates for IPOs, were integrated into Dongwon Group through M&A deals.

Dongwon Industries acquired StarKist in 2008 for $380 million, collaborating with KDB and private equity funds. In 2017, the group purchased Dongwon LOEX (formerly known as Dongbu Express) for 420 billion won. Dongwon LOEX recorded a significant increase in revenue last year, with sales totaling 1.21 trillion won, up 13 percent from the previous year. Dongwon Home Food and StarKist also witnessed substantial growth in their revenues, each experiencing an increase of more than 20 percent in the past year.

Dongwon is set to participate in the acquisition of HMM without the support of financial investors (FIs), which means that all funding for the acquisition must be raised on its own.

It is not only considering initial public offerings for its lucrative unlisted subsidiaries but also exploring avenues such as liquidating its equity asset, leveraging its relatively low debt ratio, and obtaining loans from the financial sector.

The company is also emphasizing its relatively low debt ratio as a strength, even though it has comparatively lower cash assets than other contenders. According to the Financial Supervisory Service’s electronic disclosure system, Dongwon Industries’ debt ratio was 53 percent as of the end of June, significantly below the 200 percent requirement for holding companies.

This suggests the company has ample room for additional borrowing. While its cash assets amount to 516.9 billion won, which is lower than some other contenders, Dongwon Industries plans to leverage its relatively high credit rating (AA-) to raise funds through various means, in addition to acquisition financing from institutions like Hana Bank.

The competition for HMM is currently a three-way race, with Dongwon Industries competing against consortiums led by Harim and JKL Partners and LX International. The selling side, represented by KDB and Korea Ocean Business Corporation, has provided a two-month due diligence period from June 6 and plans to hold a final bid in mid-November, with an aim of signing a stock purchase agreement (SPA) by the end of 2023.