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| An HMM container ship / Courtesy of HMM |
By Kim Hyun-bin, Kim Yoo-chul
Cash-abundant POSCO is seen as the most-preferred candidate to take over Hyundai Merchant Marine (HMM) as the Korea Development Bank (KDB), HMM's largest shareholder, is seeking to strengthen its "corporate restructuring portfolio" by handing over its holdings to a "financially stable" entity, according to sources, Thursday.
HMM has been hit hard by fierce price competition that has resulted in its financial troubles, with the state-run KDB ending up taking over the firm in December 2017. Despite these challenges, the company is starting to turn a decade of losses into operating profits and many conglomerates are vying for a chance to buy the country's leading marine shipping company.
With this recent successes, all eyes are on who the next owner will be. In 2018, the KDB approached POSCO, indirectly, with an offer to pass on its holdings to the country's top steelmaker ― unsurprisingly, POSCO officials have denied the possibility that the company may acquire this controlling stake in HMM.
The KDB is exploring the best possible way to restructure the shipbuilding and shipping industries to help the country recapture its global top status in this sector.
As of the first quarter of 2021, POSCO's cash-equivalent assets were over 4.5 trillion won, more than the 4.3 trillion won valuation of the KDB's holdings in HMM.
"The HMM sale process is a kind of government-led project, not just a simple market thing. Amid the boom for the shipping and shipbuilding industries, the KDB aims to privatize HMM as these industries are backbone industries for Korea like aviation, batteries and semiconductors," one source said. "HMM's visible recovery is thanks to the government's massive cash-spending on the company. Now, as the KDB is being asked to justify such heavy cash-assistance, its decision to sell its stake in HMM to a financially-strong company is the right one."
Hyundai Heavy Industries (HHI) is also being mentioned as an attractive potential buyer given expected synergy if it acquires HMM. It attempted to take over the managerial rights to HMM a long time ago, but failed. This time, the possible acquisition will help it create a vertically-integrated business structure ranging from shipbuilding to shipping.
HHI is awaiting to receive approval from several anti-trust agencies for its proposed acquisition of Daewoo Shipbuilding and Marine Engineering (DSME) through its newly created mid-level holding firm, KSOE. "HMM is a truly ideal fit for HHI given the latter's core strengths. Plus, a new order is also prevailing in the global shipbuilding and shipping industries with a few major players controlling the markets. That means, these industries are becoming less cyclical and more concentrated," said a high-ranking industry executive.
However, HHI officials denied any such possibility.
Last year, HMM recorded 6.41 trillion won in sales, up 16.3 percent from the previous year, with an operating profit of 980.8 billion won, its first since 2010.
In the first quarter of this year, the company saw a boom in marine transportation and recorded 2.42 trillion won in sales, an increase of 84.9 percent from the same period last year. Operating profit hit 1.19 trillion won, or 42 percent of total sales.
According to the Korea Exchange, after the start of the COVID-19 pandemic, HMM had the highest increase in market capitalization among firms listed here ― it had hit a low of 693.2 billion won in March, 2020, but this surged to more than 15 trillion won.
However, the rise in share price will only be a burden for a prospective buyer as the cost of acquisition mirrors this.
