HMM is exercising its right to make early repayment to holders of KRW240 billion (US$220.79 million) of convertible bonds.
The bonds were issued in December 2020, with a five-year maturity period, but the issuer is entitled to execute early redemptions if HMM’s stock price exceeds 150% of the conversion price (KRW12,850 (US$11.34)) for 15 consecutive trading days after one month from the issuance.
Convertible bonds can be changed into stocks and receive valuation gains when the stock price rises above the conversion price and yield only a fixed interest rate when the stock price falls.
As HMM's stock price has exceeded the level required for early redemption, South Korea’s flagship container carrier announced on 24 March that it had decided to exercise its rights to make early repayments. If the investors do not request stock conversion by 5 April, they will receive full repayment from HMM.
HMM said, “The early repayment of convertible bonds is expected to resolve the uncertainty in the stock price resulting from the stock conversion and improve the company’s debt-to-equity ratio.”
HMM’s stock price closed at KRW29,150 (US$25.73) on 24 March; the price has been rising on expectations of better earnings in 2021.
After years of losses, HMM achieved an all-time high operating profit of KRW980.8 billion (US$831.1 million) in 2020, as container freight rates soared to unprecedented levels amid tight capacity that has seen the company expediting delivery of eight new 16,000TEU ships. The ships are to be deployed to Asia-Europe services.
As of 31 December 2020, HMM had long-term interest-bearing debt of KRW1.06 trillion (US$976.96 billion), which against total equity of KRW1.69 trillion (US$1.55 billion), worked out to a manageable gearing ratio of 0.63:1.