LX, Dongwon, Harim struggle to raise money for HMM acquisition

The Korea Times

The Korea Times

Business

Thu, December 7, 2023 | 23:06

Companies

LX, Dongwon, Harim struggle to raise money for HMM acquisition

Posted : 2023-09-19 16:19

Updated : 2023-09-20 11:17

A refueling tanker fuels HMM's container ship at Busan New Port, Friday. Courtesy of HMM

Shipping industry slowdown causes concerns over failure in bidding

By Park Jae-hyuk

LX International, Dongwon Industries and the consortium of Harim Holdings and JKL Partners appear to be going all out to secure cash to win in a bid to acquire a controlling stake in HMM, which is estimated to be up to 6 trillion won ($4.5 billion), according to industry officials, Tuesday.

Earlier this month, creditors led by the Korea Development Bank (KDB) shortlisted the three as the candidates qualified to conduct due diligence for about two months and participate in the main bid in November.

Since then, market insiders have kept a close watch on how the bidders will raise money for the acquisition, as the companies do not necessarily hold enough cash and cashable assets to attain the HMM shares that have been put up for sale.

LX International is expected to issue new shares to secure up to 2.7 trillion won, because the trading firm modified its articles of association in March to increase the company's authorized shares to 160 million from 80 million. The decision has been viewed as a preparatory step to acquire HMM because this was the first time since 1999 that the company has raised its authorized shares.

At this moment, LX International is considered the strongest candidate. LX Group, which the trading firm belongs to, held 2.4 trillion won worth of cash and cashable assets as of the end of June.

However, the company's belated participation in the bid is said to have caused difficulties in hiring a financial adviser for the deal, because Samjong KPMG and EY Hanyoung signed contracts with Dongwon and Harim, respectively. Samil PwC is the seller's adviser, while Deloitte Anjin is LX's auditor.

"We cannot comment on our plans to acquire HMM," an LX International spokesman said.

Harim, which had 1.5 trillion won worth of cash and cashable assets as of the end of the first half, is expected to sell its property and land, including the site for its logistics center in Yangjae-dong, southeastern Seoul, which were valued at 850 billion won as of the end of last year. The company also seems to be borrowing money from financial firms, including JKL Partners, major commercial banks and securities firms.

Dongwon, which hired Bain & Company as another adviser, was reportedly considering listing Dongwon Home Food, StarKist and Dongwon Loex on the stock market. However, the initial public offerings (IPOs) will take several years, so the company is likely to borrow money from financial firms and then pay its debt with the money it will raise via the IPOs.

"An IPO process takes at least four years, so it is not a reasonable way to raise money to acquire HMM," a Dongwon Group official said.

Dongwon may collaborate with Korea Investment Holdings, which is managed by the older brother of Dongwon Vice Chairman Kim Nam-jung.

Korea Investment Holdings Chairman Kim Nam-goo, however, told reporters last Thursday that his company had not received a request from Dongwon to lend money for the HMM acquisition.

"Although Dongwon Group currently has 500 billion won worth of cashable assets, it can securitize other assets," the chairman said.

There remain concerns that the preliminary bidders may not participate in the main bid or the KDB may delay or cancel the sale procedure in the aftermath of the recent shipping industry slowdown. The Shanghai Containerized Freight Index, the world's most widely used trade index for sea freight rates, which had surpassed 5,100 in January last year, stood at around 1,000 throughout this year.

"The seller can cancel or modify the sale procedure, and the potential investor cannot object to the decision," the KDB said in its notification of the sale.

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

pjh@koreatimes.co.kr