News / HMM sale less likely as Korea increases stake

Korea Development Bank and Korea Ocean Business Corporation are expected to increase their stake in HMM to 59%, as HMM will repay 6% of convertible bonds issued to the two state-backed institutions.

The repayment amounts to nearly $74m, after the windfall from the Red Sea crisis leaves South Korea’s flagship carrier with cash holdings of nearly $800m as of 31 March.

An HMM spokesperson told The Loadstar: “HMM has enough cash, so it is correct that we decided to repay in advance. It’s also because the issuance of the convertible bonds has passed five years, and interest rates will rise from 3% per year to 6% per year from the sixth year.”

An additional 0.25 percentage points will also be added to the interest rates every year from the seventh year.

The repayment will leave KDB and KOBC with KRW1.58 trillion ($1.1bn) of convertible bonds, which were issued on 19 May 2019 for a 30-year term. HMM however, has the option of early redemption.

HMM’s spokesperson added that KDB and KOBC will decide on the conversion of the bonds to shares on 24 May.

The price at which the bonds can be converted into shares is KRW5,000 won per share. As HMM’s stock price is currently at KRW18,000, KDB and KOBC can make a three-fold profit.

However, the stake increase could further discourage any companies from acquiring HMM should the government attempt to sell the company again. In mid-2016, HMM came under state control after KDB and other lenders swapped their loans for equity to save the company from financial trouble.

This round of bond conversion could see the financial institutions increase their holdings from 399.79m shares to 418.79m shares.

HMM can exercise its rights to repay more bonds in October and March 2025, and this could bring the state’s interest in the company to 71.7%.

Last December, when a consortium comprising Harim Group and JKL Partners was chosen as the preferred bidder for HMM, the price was KRW6.4 trillion ($4.9bn). Eventually, the sale fell through in February, partly because KDB and KOBC did not accept the consortium’s request to suspend the repayment of the perpetual bonds.