HMM will not be sold to the Harim Group-JKL Partners consortium, after talks with the South Korean flagship carrier’s state-controlled shareholders, Korea Development Bank (KDB) and Korea Ocean Business Corporation (KOBC), fell through after midnight Seoul time today (7 February).
After seven years of being under state control following a debt-for-equity swap to avert bankruptcy, it appeared that HMM would have a new owner in December 2023, when the Harim-JKL consortium was favoured over 3PL Dongwon LOEX to acquire the mainline operator.
Both Harim-JKL and Dongwon LOEX each offered about US$4.9 billion for a 57.9% stake in HMM.
Harim Group, a poultry processor, had collaborated with JKL, a private equity investor, to take over dry bulk outfit Pan Ocean in 2015.
The writing appeared to be on the wall when the consortium, KDB and KOBC, failed to reach a sales agreement on the original target date of 23 January.
South Korean media reported that the consortium had several requests that were disapproved by KDB and KOBC.
These requests included a three-year delay on exchanging convertible bonds that would give KDB and KOBC a 32.8% stake, while reducing Harim-JKL’s stake to 38.9%. Such a move allows KDB and KOBC to appoint independent directors, which Harim-JKL viewed as undermining its control over HMM.
Harim had also wanted KDB and KOBC to exclude JKL from the five-year limit on selling HMM shares.
The parties resumed talks on 6 February, and although the earlier requests were withdrawn, it meant excluding JKL from the acquisition. This was said to have caused consternation to KDB and KOBC, as it was unclear how Harim, which has around US$740 million of cash holdings, could raise the acquisition funds. KDB and KOBC were also reportedly mindful that changing the bidder’s structure would be unfair to others that participated in the bidding.
The disparity in the financial standing of Harim and HMM, which has approximately US$1.4 billion of cash, caused media speculation that the choice of Harim would result in a “winner’s curse”.
Still optimistic about concluding the purchase, Harim’s representatives persisted with the discussions until midnight, but their issues with the selling side proved insurmountable.
KDB and KOBC said: “We worked faithfully with mutual trust during the seven-week negotiation period, but the negotiations ultimately broke down due to differences of opinion on some issues.”
HMM will remain under the control of KDB and KOBC, which are expected to await for another opportunity to sell the company. The sudden change in the recent market situation for container shipping, with the Red Sea crisis and Hapag-Lloyd leaving THE Alliance which HMM is also part of, presents a challenge.
Harim conceded that the amount of bonds held by KDB and KOBC was a stumbling block.
It said: “We participated in the negotiations in good faith by providing constructive opinions to secure stable management for HMM and enhance global competitiveness, but the negotiations ultimately fell through.”
Linerlytica analyst Tan Hua Joo told Container News that he felt that the Harim-JKL consortium could not succeed in its bid. He said: “The sale was problematic from the beginning given the big valuation gap between the sellers and buyers.”
Tan believes KDB and KOBC will try again to sell HMM.
He noted: “There’s no justification for HMM to be nationalised and KDB will be forced to hold the HMM stake until the next window for a sale can be found. HMM is effectively nationalised under KDB and KOBC ownership. But the ownership mandate was always meant to be short term.”