Concerns grow over lack of big firms in bid for HMM

By Park Jae-hyuk

The Korea Development Bank (KDB) seems to be facing a dilemma over its plan to privatize HMM by the end of this year, as large companies have remained lukewarm about participating in the preliminary bid slated for Monday, according to industry officials, Sunday.

After last month's announcement on the beginning of the sale procedure, multiple Korean mid-sized companies reportedly received the information memorandum, having expressed their interest in the acquisition deal.

LX, SM, Dongwon, Harim and Global Sae-A groups are among those companies mentioned. It is still uncertain whether Hyundai Motor and POSCO groups will participate in the bid.

The recipients of the information memorandum do not necessarily hold enough cash and cashable assets to afford the up to 6 trillion won ($4.5 billion) worth of HMM shares put up for sale. LX holds 2.4 trillion won worth of cash and cashable assets, while Harim has 1.5 trillion won and SM has 1 trillion won. Dongwon holds 600 billion won in cash and cashable assets.

Therefore, potential buyers are pushing ahead to join hands with financial firms.

While Harim and Global Sae-A are said to be seeking cooperation with JKL Partners and IMM Private Equity, respectively, Dongwon may collaborate with Korea Investment Holdings, which is managed by the older brother of the Dongwon vice chairman. LX is expected to win support from LG or GS groups, considering the family relations among the chiefs of the three groups.

However, the potential buyers still need to pay a significant amount of interest, if they borrow money from financial companies.

Industry officials expect the potential buyers to seek a leveraged buyout, which is intended to pay parts of HMM's 12.3 trillion won worth of cash and cashable assets to the new owner as dividends, so that the owner can pay its debts.

In such a scenario, HMM could suffer a shortage of cash for its investments in future growth engines.

“If the KDB lets the buyer receive an excessive amount of dividend from HMM, the state-run bank will face criticism for neglecting its duties,” a shipping industry official said.

Although Germany's Hapag-Lloyd, which is the world's fifth-largest shipping company, reportedly received the information memorandum, there is a slim chance for the KDB to sell HMM to a foreign firm.

When multiple foreign shipping companies participated in a preliminary bid for Hyundai LNG Shipping in March, Korea's shipping industry officials and the government strongly opposed the sale of a Korean shipping company to a foreign buyer.

Against this backdrop, speculation is growing that the KDB may delay its plan to choose the preferred bidder by November, because the bank did not rule out the possibility of cancelation or modification of the sale procedure.

KDB Chairman Kang Seog-hoon also told the press in June that the bank wants to sell HMM to a company having sufficient capital, management ability and willingness to contribute to the Korean shipping industry.