HMM's container ship / Courtesy of HMM



By Park Jae-hyuk



HMM's stock price fell sharply, Tuesday, after it was reported on Monday evening that Hyundai Motor Group and POSCO Group were absent from the preliminary bid to acquire the shipping company from creditors, which was led by the state-run Korea Development Bank (KDB).



Immediately after the beginning of Tuesday's trading session, HMM's stock price dropped over 5 percent. Although its stock price rose slightly in the afternoon, it closed at 17,200 won, down 4.39 percent from the previous session's close.



Samsung Securities, the underwriter for the HMM deal, reportedly received tenders from LX, Dongwon and Harim, as well as Hapag-Lloyd, a German shipping company, until the deadline at 5 p.m. on Monday.



SM and Global Sae-A groups, both of which had received the information memorandum, decided not to participate in the bid, proving that HMM is less attractive than expected in the M&A market.



The Korean participants in the preliminary bid do not necessarily hold enough cash and cashable assets to afford the up to 6 trillion won ($4.5 billion) worth of HMM shares put up for sale. LX holds 2.4 trillion won worth of cash and cashable assets, while Harim has 1.5 trillion won and Dongwon holds 600 billion won.



The bidders plan to borrow money from financial companies, but in that scenario, they still need to pay a significant amount of interest.



As a result, concerns are growing that they may seek a leveraged buyout, which is intended to pay parts of HMM's 12.3 trillion won worth of cash and cashable assets to the new owner as dividends so that the owner can pay its debts.



In such a scenario, HMM could suffer a shortage of cash for its investments in future growth engines.



HMM is considered affordable for Hapag-Lloyd. But the government is not expected to sell Korea's only large-size container shipping company to a foreign firm.



Against this backdrop, speculation is growing that the KDB may delay or cancel the sale procedure.



The bank currently plans to select the preferred bidder in November, once the bidders finish their due diligence which is scheduled to take about two months.



"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.

