The priority bidder for international shipping company HMM control has arrived!

South Korean state-owned financial institutions have taken a crucial step in the long-term efforts to privatize HMM, announcing that they have chosen Harim Group, the parent company of Pan Ocean, as the preferred bidder to acquire control of HMM. The final round of bidding was held in November, which was a head-on showdown between two Korean companies.”Korean Ocean Commercial Company and Korean Development Bank have chosen Pan Ocean and JKL consortium as the preferred negotiating parties for the sale of HMM management rights,” they announced in a brief statement. According to media reports, the estimated bid for nearly 58% of HMM’s outstanding shares (i.e. nearly 400 million shares) is $4.92 billion. This means that HMM’s total valuation is close to $8.5 freight forwarderThey now plan to conduct final negotiations on detailed contract terms. State owned institutions report that the transaction is expected to be completed in the first half of 2024.This marks a crucial step for the government in a decade long effort, first by rescuing modern merchant ships in financial difficulties, and then successfully restructuring the company into a modern merchant ship. The Korean Development Bank made its first investment in the container transportation company in 2013, when the company was in bankruptcy. Three years later, it acquired control of the company through debt to equity swaps and also established the Korean Ocean Commercial Company to lead its recovery.The business units, including liquefied natural gas transportation companies, were sold, while KOBC helped finance the construction of 20 new ships to modernize the container business. Modern merchant ships have become one of the most efficient carriers, including pioneers in the category of ultra large container ships, which once became the world’s largest container ship in terms of transport capacity. These efforts paid off, and modern merchant ships resumed profitability in 2020 after an eight year hiatus, earning huge profits during the surge in container transportation from 2020 to 2022.The South Korean government hopes to retain the ownership and control of modern merchant ships in South Korea, while food processors and the country’s largest poultry company, Harim Group, promise to make South Korea a shipping powerhouse. Harim is partnering with private equity firm JKL, which will help provide funding for this transaction. JKL is also a partner of Harim’s acquisition of Pan Ocean in 2015.According to South Korean media reports, the election committee was deeply impressed by the management of Pan Ocean Group, which is one of the leaders in dry bulk shipping. About 70% of Pan Ocean’s business is in bulk carriers, but the company also has a slight interest in containers, oil tankers, and liquefied natural gas/heavy transportation. According to reports, they have over 100 bulk carriers and manage a fleet of 300 ships. It is unclear whether the plan includes the merger of Modern Merchant Shipping and Pan Ocean Group, according to the report.Media reports have raised some questions about potential regulatory issues as the acquisition requires scrutiny from antitrust regulatory agencies. Harim must also use its finances to pay the high acquisition price. The company stated that it will sell stocks and bonds, and may also sell some ships.According to media reports, one of the key obstacles to the transaction is the country’s strategy of remaining shares in modern merchant ships. According to reports, the bidding initially included a provision that KDB and KOBC would not convert their remaining bonds for at least three years. At the beginning of the bidding process, government agencies stated that they would collaborate with buyers to develop a sale plan for the remaining perpetual bonds. When these bonds are converted into stocks, the buyer’s shareholding ratio will be diluted from 58% to slightly below 39%. According to reports, Harim has withdrawn the rule that cleared the way for it to win the bid after receiving high praise from the committee for its management and financial plans.HMM recently emphasized that the company is advancing its diversification strategy and continuing to consolidate its position as a container ship. In 2023, the company ordered 9 methanol fuel 9000 TEU container ships and 3 pure car and truck transport ships (PCTC). HMM has also ordered four multi-purpose vessels (MPVs) and recently signed long-term charter contracts for four bulk carriers. In early December, it was reported that they would build at least six of the world’s largest car transport ships and sign a long-term charter agreement with Hyundai Glovis for operation.Harim expects to commence additional due diligence on HMM within the next year. According to media reports, Dongyuan Group, which failed the bid, may protest against the deal, but it is expected that state-owned institutions will continue to negotiate to complete the sale contract.

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