News / SM Group founder sets limit of $3.5bn for acquisition of HMM

Photo: SM Line

UPDATED 21.7.23 TO INCLUDE SHARE SALE DETAILS

Samra Midas (SM) Group’s founding chairman, Woo Oh-hyun, has at last confirmed his sights are set on taking over South Korean flagship carrier HMM, after becoming its third-largest shareholder.

Mr Woo disclosed his plans during an interview with the Korea Economic Daily yesterday, more than a week after HMM disclosed that SM Group had increased its stake to 6.56%.

The group, that includes rival box carrier SM Line and dry bulk specialists Korea Line Corp and Korea Shipping Corp, has been buying HMM shares since 2021. SM Line was launched in 2016, after Mr Woo’s group purchased the operations of bankrupt Hanjin Shipping.

State-controlled policy lender Korea Development Bank (KDB) and state-controlled ship financier Korea Ocean Business Corp, have stakes of 20.69% and 19.96%, respectively. Shares held by other state institutions, National Pension Service and Korea Credit Guarantee Fund, bring the government’s interest to 52%. The state assumed control of HMM in 2016, after KDB swapped debt for equity.

KDB has repeatedly made it clear it wants to offload its stake in HMM, but the deteriorating freight market and perceptions of a hefty price tag have reportedly deterred potential bidders. Hyundai Motor, steelmaker POSCO and logistics conglomerate LX Group have been suggested as possible buyers, but all three have denied any interest.

Mr Woo told the publication: “We can raise funds of up to KRW4.5trn ($3.5bn) through the cash holdings of each affiliate and bank loans. I received several requests from inside and outside the SM group to acquire HMM.”

But he added: “I have no intention of spending even one more won than KRW4.5trn [as an acquisition price].”

Market observers told The Loadstar it made sense for HMM to merge with SM Line, as it would be “more pragmatic” for South Korea to have just one ocean-going carrier.

Alluding to SM group’s reputation as the South Korean shipping industry’s white knight – having acquired Korea Line, Korea Shipping and dry bulk unit Chang Myung Shipping – Mr Woo said: “I’m 72 years old, and I’d like to complete the national shipping industry for the last time.”

However, he warned: “There’s talk of converting HMM’s convertible bonds held by KDB into stocks, if this happens, we won’t participate in the bidding.”

Mr Woo’s statement confirmed potential buyers’ concerns that the convertible bonds, potentially a 20% stake, could add $2bn to the price tag.

Local media reports, citing sources in the investment banking sector, claim that KDB might convert less than half of its convertible bonds to bring down the acquisition price. That could mean the state would remain HMM’s largest stakeholder, even after KDB and KOBC sold their shares.

UPDATED 21.7.23

Yesterday, through the South Korean government’s online bidding site, KDB invited bids for HMM shares held by itself and KOBC, as well as additional shares resulting from the exchange of 37% of its convertible bonds in the company. The notice on Korea Online E-procurement System stated that KDB will exchange the first set of convertible bonds on 2 October, when the state policy lender can exercise the call option on the bonds.

Nearly 400M HMM shares will be sold by KDB and KOBC after the convertible bonds are exchanged for shares, amounting to a 57.88% stake. The remaining bonds would be converted into shares after the state’s majority stake is sold.