Last month, Hanhwa Group, the seventh largest conglomerate in South Korea, announced
a takeover of state-owned shipbuilding giant Daewoo Shipbuilding & Marine Engineering (DSME). It is the first time in 21 years for DSME to have a private owner, as it has been managed by its biggest shareholder, the state-run Korea Development Bank (KDB).
Following the sale of DSME, there is speculation other government-owned entities may be up for sale soon, which includes the country’s biggest shipping company HMM. About 40 percent of the stocks of HMM, formerly known as Hyundai Merchant Marine, are in the hands of KDB and state-run company Korea Ocean Business Corporation (KOBC), according to Korean Financial Supervisory Service. Their total stake becomes 74 percent when their convertible bonds are converted into shares.
HMM was suffering from losses for the past few years with mounting debts. However, during the pandemic, HMM made a turnaround with a bigger demand from international orders and a surge in freight rates. The company’s net profit during the first half of this year increased by 1,500 percent year-on-year.
KDB said on October 4 there is no immediate plan to sell HMM. Oceans and Fisheries minister Cho Seung-hwan, who previously said there was no plan to privatize HMM when he first stepped into office in May, recently changed his tune during a parliamentary audit on October 6 and said the government will “review” this issue.
Observes expressed concerns the stock price of HMM may fluctuate when the government decides to privatize HMM, based on historical examples from KDB. When speculation of HMM sale broke, its stock price was on a decline over the past month. The price on October 7 was 18,200 won (US$12.89) per share, which was a 13-percentage-point decrease compared to its highest in September, 21,050 won (US$14.91).
Jeff Koo, logistics professor at Baehwa Women’s University, said to Maritime Fairtrade: “KDB earned profits from the stock sale but the sale negatively impacted small investors. When there are more stocks in the market, the price drops.”
Even if the government decides to sell HMM, there might not be any buyers because of the high price tag. HMM is valued at 10 trillion won (US$7.8 billion), with 14 trillion won in cash. Additionally, Koo said in the current market situation with plummeting freight rates, soaring oil price and high interest rates, there is no guarantee HMM will do well in the following years.
“The new owner has to have a big enough war chest, experience of running a global business and vast related industry knowledge. Not many companies can fulfil all these conditions,” said Koo.
Photo credit: Pexels/ Sora Shimazaki