Anna Jiwon Park has been covering the politics at The Korea Times since the summer of 2024, when she joined the press pool for the Office of the President in Korea. Prior to that, she spent about five years reporting extensively on financial markets, regulatory authorities and the financial industry. She joined The Korea Times in 2019 after spending eight years as a broadcast journalist at Arirang TV, Korea’s leading global broadcaster, covering politics, defense and culture.
KDB, KOBC stakes in HMM to increase with stock conversion rights
A container ship of HMM is docked in this undated file photo. Courtesy of HMM
By Anna J. Park
Gov't stake in shipping firm to rise to 74% by next April
The two largest creditors of Korea's biggest shipping company, HMM, decided to exercise their stock conversion rights for 100 billion won ($73 million) worth of 30-year maturity hybrid bonds of the shipping company, HMM said earlier this week.
Hybrid bonds, or convertible bonds, are a type of fixed-income corporate debt security that can be converted into a predetermined number of equity shares.
As the two creditors — the state-run Korea Development Bank (KDB) and the Korea Ocean Business Corp. (KOBC) — move to convert the bonds into a total of 20 million HMM shares, the number of shares of the shipping company held by the Korean government increased to approximately 419 million from the previous 399 million shares.
As a result of the conversion, their joint ownership stake rose by 1.18 percentage points to 59.1 percent from the previous 57.9 percent.
Last October, KDB and the KOBC also exercised their stock conversion rights for perpetual bonds worth 400 billion won, adding a total of 80 million shares to their stock holdings.
Industry watchers say that KDB and the KOBC exercising their stock conversion rights repeatedly can be seen as a move to eliminate a potential breach of fiduciary duty.
This is because the state-run creditors could garner approximately 351 billion won by exercising the stock conversion rights over the hybrid bond worth 100 billion won, given HMM's closing price on Monday, while the other option of accepting HMM's early repayment would only yield about 100 billion won.
Consequently, it means that it is only natural for the creditors to choose to exercise their stock conversion rights to best respect the interests of public bondholders and thereby service their fiduciary duty, as it brings the government much higher returns on its investment.
Dilemma over HMM stock conversion
However, this represents a dilemma in which the decision to best serve the public bondholders' interests might further diminish the likelihood of HMM being sold to other owners.
Considering the series of subsequent arrivals of other stock conversion periods on the perpetual bonds held by the two creditors until next April, the stake in HMM held by the government is set to increase to about 74 percent.
The government's increased stake is expected to complicate the sale of HMM due to a higher acquisition cost of nearly 13 trillion won as of Monday's closing price of HMM on the stock market.
KDB became the largest shareholder of HMM in 2016 through a debt-to-equity swap, as the shipping company failed to repay the principal and interest on maturing corporate bonds, with its credit rating dropping to a default level.
Subsequently, HMM underwent debt restructuring and equity conversion by creditors, including KDB. The shipping company issued about 2.7 trillion won worth of convertible bonds and bonds with warrants to KDB and the KOBC from 2018 to 2020 to secure additional funds.
KDB and the KOBC have been aiming to sell their stakes in HMM, but their latest attempt to sell the company to Harim ended up breaking down due to Harim's insufficient funding plan and a lack of financial soundness early this year.