KDB, HMM on edge as presidential candidates vow to move them to Busan

Korea Development Bank (KDB) headquarters in Seoul's financial district of Yeouido / Courtesy of KDB

The Korea Development Bank (KDB) is in a dilemma over major presidential candidates’ pledges to move it and HMM, Korea's largest shipping firm, which it controls, to Busan, as politicians try to woo voters in the nation's second-largest city, according to industry officials, Tuesday.

Lee Jae-myung, the presidential frontrunner from the liberal Democratic Party of Korea (DPK), pledged to relocate HMM headquarters from Seoul to Busan.

Such a promise is aimed at bolstering Busan’s economic growth as the country’s largest port city, at a time when it struggles with a shrinking population and fewer jobs.

Underlying Lee’s pledge is that KDB, a state-run lender, remains HMM’s largest stakeholder. Otherwise, the new government would not have adequate reasons to ask the company to move its headquarters.

HMM is headquartered in Parc1 in Seoul's financial district of Yeouido. Yonhap

But KDB has sought to sell its 36.02 percent stake in HMM for years, after the shipper underwent court receivership, but it has fully normalized its operation.

Unloading the stake has become increasingly crucial, as HMM’s stock price is on an upward trajectory and puts pressure on KDB’s capital adequacy ratio.

For instance, HMM reached 23,700 won ($17.01) per share, a new 52-week high, during intraday trading on the benchmark KOSPI on Friday.

A measure of a bank's financial health and its ability to absorb potential losses, the capital adequacy ratio can worsen if the corresponding stock price goes up at an excessively high pace.

KDB estimates that for every 1,000 won increase in HMM’s stock price, the bank’s capital adequacy ratio will fall by 0.01 percentage point.

The bank also said such a ratio can potentially fall from the current 13.9 percent to lower than 13 percent, a threshold recommended by financial authorities, if HMM continues its bullish run.

Both KDB and HMM declined to comment on Lee’s pledge.

A securities analyst said on condition of anonymity, “The KDB may not be able to simply unload its HMM shares because such a possible decision would collide with the leading presidential candidate’s HMM relocation plan.”

The analyst also said keeping HMM shares can be “a negotiation card” for KDB in relation to the pledge of Kim Moon-soo, Lee’s opponent from the conservative People Power Party (PPP).

Kim promised to uphold former President Yoon Suk Yeol’s bungled plan to relocate KDB headquarters from Seoul to Busan in the name of balanced regional economic development.

“And by holding the HMM shares, KDB may convince Kim to take HMM to Busan instead of it moving to the port city,” the analyst said.