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Talks over HMM sale fall through

There are growing concerns about the competitiveness of HMM Co., South Korea’s sole ocean-going container carrier, as talks over its sale fell through. Given that the Korean shipping industry is now facing challenges due to the reorganization of global shipping alliances, it is uncertain whether HMM, which is expected to be managed by the state-run Korea Development Bank (KDB) again, can maintain its competitiveness via large-scale investments.

According to sources from the Korean government and shipping industry on Wednesday, HMM is once again expected to be placed under the management of its creditors, including KDB and Korea Ocean Business Corp. (KOBC), which hold a 57.9 percent stake, for the time being. This is due to negotiations between the sellers and a consortium made up of Harim Group and JKL Partners Inc. which had been the preferred bidder to acquire HMM, collapsing a day before, practically ending an eight-year-long attempt to privatize HMM that began in 2016.

The shipping industry, while relieved at Harim’s exit due to doubts about its financial capabilities and management skills, is calling for a quick resale to normalize the management of HMM, currently the world’s eighth largest shipping company. Prolonged ownership uncertainty could lead to investors being reluctant to make long-term investments.

The shipping industry is viewed as an industry that needs to diversify its business portfolio and expand its fleet via bold investments even during a recession to enhance future competitiveness. In this regard, there is a great need for a robust private company to take over HMM’s management to strengthen its competitiveness. But the sellers selected Harim, which was trying to raise funds via acquisition financing worth 2 trillion won ($1.5 billion), as the preferred bidder, drawing criticism from the industry.

“It was a waste of time to select a company that should not have been the preferred bidder,” a shipping industry insider said.

There are also concerns that HMM might be more inclined to refrain from making bold investments under a creditor-led management that will have a sale price in mind for any future sales. HMM unveiled a mid to long-term plan in 2022 to invest a total of 15 trillion won by 2026 to expand its fleet and acquire core assets, including terminals and logistics facilities, but has made little progress so far.

This situation contrasts with global shipping companies such as A.P. Moller – Maersk A/S, the world’s second largest, and CMA CGM SA., the third largest, which have been actively preparing for the future by expanding their fleet and logistics business portfolio using the capital accumulated during the so-called ‘Covid-19 pandemic boom.’

Adding to the concerns is an uncertain shipping environment that makes HMM’s resale difficult. The Shanghai Container Freight Index (SCFI), a freight rate benchmark for global ocean shipping lanes, stood at 2217.73 on February 2nd, 2024, up 2.2 times from 993.21 on November 24th, 2023, when the main bidding for HMM took place. The consensus in the industry, however, is that this is a temporary phenomenon due to the disruption of the route in the Red Sea caused by attacks on merchant ships by Houthi rebels in Yemen. “Freight rates are expected to decline again as there are more ships available than global cargo volume,” a second industry insider noted.

The reshuffling of shipping alliances is another variable. The withdrawal of Hapag-Lloyd AG, the fifth-largest shipping company globally, from THE Alliance, a maritime alliance of which HMM is a member, is expected to exacerbate the business environment further. If THE Alliance maintains its current state, its global market share by capacity will significantly drop from 18.5 percent to 11.5 percent.

The sellers acknowledge the difficult environment for HMM’s resale, and the resale is expected to be particularly challenging if the Ministry of Oceans and Fisheries does not actively engage as the lead ministry for its sale.

A senior ministry official said that it is appropriate to pursue resale once conditions are suitable, but a key figure involved in the sale said that there are currently no plans for a resale, suggesting that it will be a while before any resale efforts are initiated.
Source: Pulse

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