Korea’s Oceans Minister Addresses Speculation for Quick Sale of HMM

Government officials in South Korea sought to address rumors that the Korea Development Bank is seeking a quick sale of national carrier HMM which has been supported by the government for the past five years. Speculation had been growing that the state-owned financial institution was actively seeking a buyer for its investment in HMM after announcing plans for the sale of the state investment in Daewoo Shipbuilding & Marine Engineering (DSME). 

"There is no need to sell HMM right now like Daewoo Shipbuilding & Marine Engineering," the Aju Business Daily reports Oceans and Fisheries Minister Cho Seung-hwan told reporters during a briefing on September 28. This appears to show a shift in the minister’s position as just six weeks ago he said that with the company returning to profitability the government no longer needed to be an investor. Previous remarks expressed the belief that the government should be seeking to privatize individual companies and focus investments of taxpayer money on broader industries.

The sale of DSME is recognized to be more urgent because the shipyard is again reporting significant financial losses. Government officials were quoted as saying that the company also requires large investments in new technologies to maintain its competitive position as the shipping industry moves to new green technologies and advances applications including AI navigation systems and automation.

Earlier in the week, KDB announced that a plan had been set for the sale of DSME. They accepted a preliminary bid from Hanwha Group for $1.4 billion to acquire a 49.3 percent stake in the shipyard. KDB would continue to be an investor with 28.2 percent of the equity reducing its position from a current 55.7 percent. The bank has launched a bidding period for DSME and will select the final bid in the coming weeks. The buyer will also receive management rights for the shipyard.

"The principle of HMM's privatization is clear, but we are cautious on its timing," Cho told reporters according to the newspaper reports. "The timing and form of their sale should be discussed differently depending on each company's value and business environment."

KDB along with the Korea Ocean Business Corporation stepped in 2016 to save the troubled shipping company then known as Hyundai Merchant Marine from possible bankruptcy. Currently, the two organizations hold approximately 40 percent of the shares outstanding of HMM. However, in addition to the shares, they were granted warrants and hold convertible bonds. If all the convertible debt is exercised, the government through the two banks would hold more than 70 percent of HMM’s equity. Speculation has been growing since 2021 of a possible sale of the government investment in HMM.

Speaking to reporters in the past the minister discussed the challenges of structuring a sale when the government owns such a large portion of the company. This week he said they would not sell HMM to foreign companies or private equity funds. He said that while HMM has returned to profitability the business will be challenging with falling freight rates and the company needs additional time to normalize its operations. 

Earlier this year, HMM’s management mapped on an aggressive growth plan as they recover from more than a decade of financial Losses. HMM is currently ranked by Alphaliner as the eighth largest ocean carrier with a total capacity of just over 800,000 TEU. Management said their goal is to reach 1.2 million TEU capacity by 2026. They are also planning to more than double the size of their tanker fleet from 10 to 25 VLCCs while in dry bulk they plan to grow the fleet from 19 to 30 ships also by 2026. The plan also calls for growing the company’s logistics business including terminals and intermodal operations.