KDB takes more cautious stance on HMM sale

Kang Seok-hoon, chairman of the Korea Development Bank says during a National Assembly audit session. [Photo by Yonhap]

Industry players are eying the recent remarks made by Kang Seok-hoon, chairman of the Korea Development Bank (KDB), who has said that “there is no reason to sell HMM Co. if there is no qualified buyer, and it’s only right.” The comment matches the grim outlook that has constantly been raised surrounding the sale due to the company’s large size and the recession in the shipping industry.

“With Hanjin Shipping Co. in bankruptcy proceedings, (HMM) is the only independent container carrier, which is very important for the country,” Kang said at a national audit by the National Assembly’s National Policy Committee on Tuesday. “There are concerns that the acquirer could siphon off 13 trillion to 14 trillion won ($9.65-10.39 billion) in cash for private use, and we will implement complementary measures to prevent that from happening.” Kang also appears to have hinted at the risk of HMM being acquired by a company that is too small, while mentioning that no lending support will be considered for the acquiring company.

The KDB’s tougher stance has left bidders scratching their heads as they try to navigate the waters of HMM acquisition. “I think it’s better to hand HMM over to a willing buyer quickly rather than keeping it under KDB’s management,” a senior executive from the industry said. “There’s no reason why it can‘t be normalized by improving management efficiency.” The reversal of KDB’s previous stance of finalizing the sale by the end of 2023 to the current one of not selling the company unless the buyer is qualified has led to speculations that there is currently no suitable candidate.

The shipping industry has indeed been raising doubts about the acquisition capacity of prospective bidders for the HMM sale, which is estimated to be worth 5 trillion to 7 trillion won given the size of their cash assets. The cash capacity of the three bidders is only 500 billion to 600 billion won and 2.5 trillion won at most, while HMM’s value is estimated at least 5 trillion to 7 trillion won.

Meanwhile, the bidders insist they have no problem raising funds. Harim Group formed a consortium with private equity fund (PEF) manager JKL Partners Inc., which has already attracted a number of securities firms and banks. Harim Group’s shipping unit Pan Ocean Co. also recently held a board meeting and decided to dispose of 3.9 million shares of Hanjin Kal Co. for 162.8 billion won. Competitor Dongwon Group is considering the sale of its real estate, including a building in Seocho District, Seoul, and an initial public offering (IPO) of an unlisted affiliate as ways to raise funds.

As Representative Yoon Chang-hyun asked if the KDB should consider limiting bidders’ external borrowing ratio in their financing plan, Kang said that assessing the equity ratio is more important when considering financial stability than setting a specific limit. Kang also said that HMM has become more competitive in response to concerns that the acquiring company could be jeopardized as well.

Observers in the industry see that HMM could wait for a conglomerate with deep pockets, such as Hyundai Motor Co. or POSCO Holdings Inc., to appear and rework the sale scenario. But Kang said that “there can be misunderstanding that the current applicants are not eligible, and that is not the case.” An official at the KDB also denied rumors about Hyundai Motor or POSCO joining the bid. The two companies have also denied the possibility, with an official from Hyundai Glovis Co. saying, “We have not considered acquiring HMM at all.”