SEOUL - In a significant step towards the privatization of South Korea's leading container shipper HMM Co., a consortium led by the Harim Group was announced as the preferred bidder on Monday, according to creditors of the company. This development marks a pivotal moment in the company's transition from state control.
According to Yonhap News Agency, Last month, the state-run Korea Development Bank (KDB) and the Korean Ocean Business Corp., two key state agencies, held a final bidding round for their controlling stake in HMM. The bidding drew interest from the Harim-JKL Partners consortium and Dongwon Group. The Harim-led consortium's bid of approximately 6.4 trillion won (US$4.92 billion) for 398.8 million shares narrowly surpassed that of Dongwon. These shares were originally acquired by KDB through a debt-for-equity swap seven years ago.
Sources close to the process indicate that the Harim-JKL Partners consortium was favored not only for its higher bid but also for its plans regarding the financing of the takeover. KDB and the Korean Ocean Business Corp. are expected to finalize the stock purchase agreement with the Harim-led consortium after detailed takeover negotiations, aiming to complete the deal in the first half of the next year.
In 2013, HMM, then known as Hyundai Merchant Marine, received a significant bailout of 6.8 trillion won in public funds from KDB after facing bankruptcy. Three years later, it was placed under KDB's control. The Korean Ocean Business Corp. was established by the government to support the shipper, facilitating orders for 20 very large vessels to enhance its competitiveness. The company, renamed HMM, reported its first profit in nine years in 2020 and achieved a record operating profit of 9.9 trillion won in 2022, prompting creditors to initiate the sale process.
Harim Group, known for owning Harim Co., South Korea's largest poultry-processing company, and JKL Partners, a major private equity fund, have outlined plans to finance the acquisition through various means, including the sale of stock and bond holdings, issuance of perpetual bonds, and selling vessels. If successful, the acquisition will elevate Harim Group to become the 13th-largest conglomerate in South Korea, a significant leap from its current ranking.
The announcement was initially scheduled for early December but was delayed due to several conditions laid out by the Harim consortium, including a demand to postpone the conversion of perpetual bonds into equity for three years post-acquisition. However, these demands were reportedly withdrawn prior to the announcement of the preferred bidder.
Despite the potential acquisition, market analysts have expressed concerns regarding challenges Harim might face, such as decreased demand due to a global economic slowdown, rising interest rates, and a surplus of shipping vessels. The Shanghai Containerized Freight Index, a measure of global freight rates, has shown a significant decline compared to the previous year, adding to these concerns. Geopolitical risks, including conflicts in the Middle East and Ukraine, are also seen as potential obstacles for the shipping industry.