SM Line Invests $14 Million in HMM Ahead of Possible Government Sale

As South Korea explores the privatization of parts of its shipping industry in 2022, emerging shipping line SM Line is quietly posturing for future growth. Management confirmed that it has made a $14 million investment in its larger rival HMM in advance of a possible sale by the government in the year ahead.

Launched in 2016 through the acquisition of Hanjin Shipping, SM Merchant Marine, which is part of the larger SM Group of South Korea, has ambitions for growth. Management, however, is denying that the new investment into HMM is anything more than an investment. In a filing, it confirmed the purchase of just over 600,000 shares of HMM completed in late December. It represents less than half a percent of the outstanding shares of the larger shipping company, but it renewed speculation of a possible merger between the two carriers.

For most of 2021, Korean officials were openly discussing the possibility of the government selling its position in the former Hyundai Merchant Marine after helping to stabilize the company after years of financial losses. Korea Development Bank became involved with HMM in 2016 when the bank made a debt deal to save the troubled shipping company. KDB and Korea Ocean Business Corporation currently hold more than 40 percent of the shares of the shipping company in addition to large positions in convertible debt. If all the convertible debt was exercised, the government through the two banks would hold more than 70 percent of HMM’s equity.

SM Line detailed its plans for growth in the fall of 2021 as the company planned an initial stock offering. Currently, operating 18 containerships, SM mapped out plans to grow operations to North America as well as in Asia. Currently, they operate four routes to the U.S. West Coast that accounts for about 90 percent of the line’s total sales. Two years ago, they became the first Asian carrier to offer direct service to Portland, Oregon, carrying more than 54,000 TEU on the route. The line also operates nine routes in Asia.

Expansion plans call for the addition of a route to the U.S. East Coast potentially with calls in New York, Savannah, and Charleston while in Asia they plan to grow to 13 routes by 2024. To achieve the growth, they plan to introduce new ships as well as building out their network and in North America expanding links with Union Pacific and Canadian National Railway. Among the large shippers SM reports it supplies services to are Samsung Electronics and LG Electronics in Korea as well as GE, Walmart, Dollar Tree, and Harbor Plate in the U.S.

Despite the strength of the shipping market, SM however decided to postpone its IPO at the beginning of November 2021. Management cited concerns by investors that the shipping market might be peaking, as well as declining interest in new stock offerings, and market turbulence due to the pandemic. They decided that the offering was not receiving an appropriate valuation and postponed it for a later, unspecified date.

Management was quick to deny speculation that it was seeking a first-mover advantage by investing in HMM. At the end of 2021, government officials confirmed that a plan was being finalized for the stock sale of HMM, although others commented that HMM still has large outstanding debts and has only recently shown a profit as a result of the surge in shipping fees in 2021.