SM Line is planning to acquire HMM for 3 billion USD

Container ship of SM Line (Photo: SM Line)

SM Line, Korea's 4th largest shipping line, has ended rumors for months by confirming that it is planning to buy HMM, if the largest Korean carrier is officially listed for sale. In an exclusive interview with the Korea Economic Daily on July 19, SM Group Chairman Woo Oh-hyun confirmed his intention to bid for the number one shipping company in Korea.

Established in 2016, SM Line acquired Hanjin's assets, including the shipping business to the US. This operation officially operated under the SM Line brand in 2018, and currently according to Alphaliner, SM Line ranks 26th in the list of 100 largest shipping lines in the world. SM Line owns 12 ships and operates 3 more chartered vessels, with a total capacity of 15 ships of more than 68,000 TEUs. The largest vessel that SM Line is operating has a tonnage of 80,000 DWT and a capacity of 6,655 TEU.

HMM is many times larger than SM Line, currently ranked at number nine on the Alphaliner chart. HMM operates 72 vessels, it owns 37 ships and another 35 vessels are under lease. The total carrying capacity of the HMM fleet is more than 790,000 TEUs. The company is also trying to modernize the fleet with the order to build 26 more container ships. HMM also owns oil tankers, bulk carriers as well as a small number of heavy-lift vessels. In 2022, the airline has also outlined a strong growth plan for the upcoming period.

Insiders have noted SM Group's intentions for more than a year, from the time SM made public that it was buying HMM shares. The initial investment was only 60,000 shares in December 2021 but at the time SM said it was just a regular investment, denying rumors that they were intending to go further. By mid-2023, SM Group had held more than 5% of HMM's shares and then made a further purchase, which was announced in early July. Holding more than 6.5% stake in HMM, SM is currently the third largest investor in Korea's number one shipping line.

HMM's two largest shareholders are Korea Development Bank (KDB), a state-run bank, and financial group Korea Ocean Business Corp., a state-controlled conglomerate, each holding about 20 percent of HMM's shares since the government launched a bailout in 2016 to support Hyundai Merchant Marine, HMM's previous name. Hyundai Merchant Marine has faced many difficulties during the prolonged downturn in the ocean container shipping market.

Container ship of HMM (Photo: HMM)

SM Group told the Korea Economic Daily that it is ready to pay up to about 3 billion USD for HMM when the deal is officially implemented. Earlier this year, government agencies formed an advisory committee to work out the best options for privatizing HMM. There has been speculation in South Korea for more than two years that government banks are working on a roadmap to bring the shipping line back to private control. This move follows after banks sold private investments in the shipbuilding sector, including the sale and refinancing of Daewoo Shipbuilding and Marine Engineering to Hanwha Group, which was completed in early 2023.

Meanwhile, SM Line reports that it has cash and investments as well as bank loans amounting to nearly $3.5 billion. Based on SM Group's assessment of the HMM, that's the maximum reasonable price, and SM Group told the Korea Economic Daily that they'll give up if the selling price exceeds that threshold, even if it's only one won.

The challenge for private investment in HMM is the amount of convertible bonds. HMM has issued bonds to raise capital after the initial bailout and currently, these bonds are mostly held by the two organizations mentioned above. If they convert the bonds, the ownership ratio of the two entities will increase from about 40% to nearly 75%, making the deal unviable, in view of SM Group leadership. KDB has also acknowledged the challenge posed by convertibles, and indicated that the deal could be done in phases, and that the bank is also asking advisors to develop the best plan to attract private investment.

SM Group, Korea's 30th largest conglomerate, also has investments in construction and other business sectors. SM believes that this will be an opportunity to promote HMM to become the largest shipping company in Asia. However, the group has also raised the possibility of exiting the shipping business if it fails to acquire HMM.

The Korean banks have yet to announce the structure of the offering or the timing of the sale of HMM's shares. Planning is becoming more complicated because of the downturn in the ocean container shipping industry after the industry spiked during the pandemic. Changes in the shipping and financial markets have also caused private investors who own Hyundai LNG Shipping to delay their plans to sell the business. It was HMM that entered the tender to acquire its former LNG carrier as part of the group's growth plan.
 

Read more:

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Source: Phaata.com (According to The Maritime Executive)

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