News / Hapag-Lloyd shows interest in buying HMM, but it may not be 'politically feasible'

Hapag-Lloyd has shown interest in acquiring South Korean flagship carrier HMM, making it the first foreign entity to be involved, sources said.

With just three days  before bids close, The Loadstar was told by sources in South Korea’s securities and investment banking sector Hapag-Lloyd had requested a prospectus from Samsung Securities, which is handling the sale of the state’s majority stake in HMM.

A carrier spokesperson said: “Hapag-Lloyd is always studying possibilities to further develop and grow our business. In that context, we also explore whether investing in other liner businesses could create an even stronger player in the global shipping industry.”

Last month, state-controlled Korea Development Bank (KDB) and Korea Ocean Business Corp (KOBC) launched a tender to sell a 57.87% stake in HMM, which came under government control, following a debt-for-equity swap in 2016.

After the Covid-19-fuelled shipping boom brought HMM record earnings, it was decided it was time to release the company from state support.

Five South Korean corporations are known to have submitted bids, or are considering it. They are logistics group LX Pantos, Samra Midas group (parent of HMM peer SM Line), Harim Group (parent of dry bulk ship operator Pan Ocean), deepsea fishing and logistics player Dongwon Group and apparel exporter Global Sae-A.

The HMM stake is estimated to cost between $3.8bn and $7.6bn. As of 30 June, Hapag-Lloyd has cash holdings of $7.38bn and retained earnings of $16.6bn, making it financially stronger than the South Korean bidders.

Xeneta’s chief analyst, Peter Sand, told The Loadstar Hapag-Lloyd could be acting to preserve its market share, as the German carrier has been less aggressive in ordering newbuildings and buying second-hand ships, as its rivals did during the boom years.

He said: “Hapag-Lloyd may not ‘catch’ Cosco [in the box ship rankings] just by buying HMM, but it will avoid being surpassed by ONE and Evergreen if it doesn’t act. Hapag-Lloyd could slide from 5th to 7th if it just sits and waits.

“It’d be a first for a government entity to be sold to a non-South Korean buyer. But, in essence, Hapag-Lloyd will close the gap that it created from being ‘late’ to the ultra-large ship feast, which HMM took full upside of, as it grew from being insignificant to biggest acquisition candidate.”

Hapag-Lloyd, ranked fifth, operates 1.88m teu and has 288,640 teu of newbuildings on order. ONE, a rung below, operates 1.68m teu, but has a larger orderbook, of 469,768 teu, and will narrow the gap with the German line. HMM, ranked eighth, operates 790,342 teu, and has 265,027 teu on order. A Hapag-Lloyd-HMM union could mean a fleet of over 3.22m teu.

Last month, The Loadstar was informed by South Korean sources that the government would be “disinclined” to sell HMM to a foreign entity, as the nation’s culture was “inward-looking”.

Linerlytica analyst Tan Hua Joo added: “It won’t be politically feasible for HMM to be sold to a non-South Korean entity, especially after it had received state support in the past.”

Hapag-Lloyd’s last M&A exercise was in 2017, when it acquired UASC, three years after absorbing Chilean carrier CSAV.

But Mr Sand thinks shippers could benefit from an enlarged Hapag-Lloyd, if the carrier could reduce its unit costs and offer lower rates and better service.

He said: “Moreover, we see Hapag-Lloyd facing headwinds for its climate-performance. Xeneta’s Carbon Emission Index has shown a number of times that HMM is a top performer. A fine match.”