After Daewoo Shipbuilding decided to sell its entirety, the privatization of South Korea's largest shipping company HMM (formerly Hyundai Merchant Shipbuilding) has become a topic of great concern to the Korean government and opposition. Due to the surge in HMM's performance last year and this year, the company's valuation has risen sharply, and this once-lossing "state-owned enterprise" has become a "big beast" that no company can easily acquire. As the super prosperous period of the global maritime industry is about to end, now, HMM's performance declines and may even suffer losses next year. The market situation reverses overnight, causing HMM to miss the best window for sale.
is reluctant to sell when making money, and cannot sell when not making money. HMM's privatization process plan has now become a trouble for the South Korean government.
only timetables and no roadmap? The South Korean government plans to complete the privatization of HMM by the end of 2025
On October 11, a relevant person from the South Korean Ocean Revitalization Commune (KOBC) said in an inquiry by the South Korean parliament: "The HMM shares held by government agencies will be reduced in stages, and the number of HMM business support groups will be reduced by the end of 2024, and its functions will be abolished based on the schedule for the completion of HMM privatization by the end of 2025." This also means that the South Korean government will not promote the sale of HMMs as hastily as Daewoo Shipbuilding, and it will take more than three years to gradually transfer the operating rights to the private sector.
At the questioning meeting, South Korea's Marine Revitalization Commune submitted a report on the innovation plan for the new government public institutions. After analyzing the report, Shin Jung-hoon, a member of the South Korean Congress' Agriculture, Forestry, Animal and Food Marine and Aquatics Committee and the largest opposition party, said: "After the Park Geun-hye government made the decision to go bankrupt in 2017, HMM was the only South Korean ship owner leading the South Korean shipping industry. Instead of mechanically determining the sales speed, we should find the best conditions and time to comply with the principle of privatization at a reasonable price and not selling overseas to maintain its Korean ship owner status."
Regarding this, Relevant persons from the South Korean Marine Revitalization Commune replied: "The current plan is to reduce the HMM shares held by government agencies in stages, but there has not yet been a practical roadmap. This requires further consultation with the South Korean Ministry of Marine and Fisheries and the Korean Industrial Bank (KDB), etc.."
In addition, at the first national political supervision inspection of the Yoon Seok-yeol government in office, which began on October 4, South Korean Marine and Fisheries Minister Zhao Seung-hwan said when accepting the national political supervision inspection: "Promoting the privatization of HMM will comprehensively Considering factors such as the sea transportation market that has entered a adjustment situation and the situation in the capital market. "
It is reported that in response to the debate in the Korean industry about Daewoo Shipbuilding and HMM sales, Zhao Seung-hwan said on September 30: "HMM will not be sold immediately like Daewoo Shipbuilding." He emphasized: "The sale of HMM cannot be confused with Daewoo Shipbuilding. Different sales times and sales forms should be discussed based on the value of each company and the related industrial environment."
Zhao Seung-hwan said: "If HMM does not happen If I am sold after consultation with relevant departments, I will resign from my position as chief. Although the principle of privatization of HMM is clear, I will carefully consider the timing. "
In response to the current maritime market's sharp decline and the possibility of missing the best selling period of HMM after next year, Zhao Chenghuan explained: "Selling should comprehensively consider factors such as cash holding and stock price. It is not that HMM cannot be sold next year."
Zhao Chenghuan also revealed the time and sales policy for HMM to achieve normalization of operations. He said: "We cannot simply rely on fleet capacity to judge whether to return to normalization. It will take about a few years for HMM to fully return to normal. It is clear that HMM will not be sold to foreign companies or private equity investment institutions."
HMM's performance improved beyond expectations, and the sharp rise in stock prices may become a "stumbling block" for sales?
In fact, the South Korean government has begun to promote the privatization of HMMs in 2021 and has been looking for buyers for HMMs.
In February 2017, Hanjin Shipping, the largest shipping company in South Korea, officially declared bankruptcy, and HMM also suffered huge losses for six consecutive years since 2011.In order to save South Korea's maritime transportation industry, the South Korean government has successively invested 7.4 trillion won (about US$5.7 billion) in public funds to help HMM adjust its structure. While promoting HMM to acquire Hanjin Shipping's excellent assets, it also provides key support to it.
According to the International Shipping Network, in 2018, the South Korean government issued the "Five-Year Plan for Maritime Reconstruction". HMM ordered 12 24,000TEU container ships and 8 14,000TEU container ships in the three major Korean ship companies, and all of them were delivered and put into operation in 2020 and 2021 respectively. As a result, HMM's transportation capacity has expanded from 450,000 TEU to nearly 900,000 TEU, almost doubled, greatly strengthening its competitiveness.
In June 2021, with financial support provided by the government, HMM signed a construction contract with Hyundai Heavy Industries and Daewoo Shipbuilding for a total of 12 new Panamax container ships of 13,000 TEU class, and is scheduled to be delivered by the end of June 2024. By then, HMM's fleet capacity will be further expanded to 1 million TEU, which is basically the same as the total capacity level of HMM and Hanjin Shipping in 2016.
In July this year, HMM released its medium- and long-term strategic vision and investment plan for the next five years, announcing that it will invest more than 15 trillion won (approximately US$11.5 billion) in the period from 2022 to 2026 to build core assets such as new ships and port terminals and logistics facilities, and build a world's top maritime logistics company. Among them, 4 trillion won (about US$3.067 billion) will be invested to order new environmentally friendly ships including container ships and bulk carriers .
At the same time, with the continuous increase in international shipping freight, HMM's performance has also begun to take off. According to International Marine Network, in the second quarter of 2020, HMM's operating profit and net profit simultaneously turned losses into profits, achieving full profit for the first time in 21 quarters. In 2021, HMM achieved operating income of 1379.41 billion won (approximately US$11.5 billion), an increase of 115.1% over 2020; achieved operating profit of 737.75 billion won (approximately US$6.168 billion), an increase of 652.2% over 2020; and achieved current net profit of 532.62 billion won (approximately US$4.45 billion), a sharp increase of 4196.5% over 2020. By setting a record high in history, HMM has recovered the operating deficits that have emerged in the past nine years at one time.
Thanks to the high sea freight rates, HMM set a record for the first half of this year, achieving operating income of 995.27 billion won (approximately US$7.68 billion) and operating profit of 608.58 billion won (approximately US$4.7 billion), an increase of 87% and 153% year-on-year respectively.
Korean industry insiders pointed out that HMM is the first example of the Korean government's successful structural adjustment of enterprises. Under this situation, there has been a voice in South Korea that "public shares of shipping companies should be adjusted", that is, since the government has achieved the goal of supporting poorly managed enterprises, privatization should be promoted as soon as possible.
However, until the first half of this year, the South Korean government still showed a cautious position on this, believing that the high global oil prices and the global port congestion and cargo backlog caused by the new crown pneumonia epidemic are still continuing, so it is too early to consider the privatization of HMM immediately. South Korea's Minister of Marine and Fisheries Zhao Seung-hwan said at the first press conference after taking office on May 25: "The government did not immediately consider matters such as privatization of HMMs. This is a matter of judgment after carefully observing economic conditions, situations, and sea operation conditions in the financial structure." On August 10, Zhao Seung-hwan also said: "When HMM continues to make profits, the government and public institutions cannot continue to bear the responsibilities that should be handed over to the market, so it is believed that from a medium- and long-term perspective, HMM should be privatized."
According to the International Shipping Network, South Korea Industrial Bank is currently the largest shareholder of HMM, holding 20.69% of HMM as of the end of last year The shares of the shares, followed by Guohaiyang Revitalization Commune, hold 19.96% of the shares, SM Group, , 5.52% of the shares, and 5.02% of the shares of the Korean Credit Guarantee Fund (KODIT) and the Korean National Annuity Group (KNPS). Although the government agency holds 45.67% of shares, the ratio will rise to 74% if the HMM permanent conversion corporate bonds (CBs) and warrant corporate bonds (WBs) held by the two agencies convert into stocks.
In response to this, Zhao Chenghuan said: "From the average price of HMM stocks, even if you want to ensure about 35% of private shares to ensure operating rights, private enterprises will invest nearly 10 trillion won (about 7.7 billion US dollars). If so, privatization of HMM will become quite difficult."As HMM's performance last year and this year achieved a better than expected improvement, and its corporate valuation has also risen sharply, which will become a stumbling block that no company can easily acquire. Therefore, the South Korean government plans to sell public shares of HMM in stages.
HMM will suffer losses as early as the second half of next year? The buyer is at risk!
is still in the time and place of the sale and privatization of HMM in South Korea. While there is endless debate, the global maritime market is experiencing a "cold flow" after experiencing continuous rise in 2021, and the situation has reversed. Since the beginning of this year, the Shanghai Export Container Freight Index (SCFI) has continued to fall, falling below 2,000 points on September 30, which is more than half of the historical high of 5,109 points at the beginning of the year. Based on this, the securities industry has issued a warning that "HMM may lose as early as the second half of 2023."
At present, HMM The performance of the company is still in a channel of inertia. According to the forecast, HMM Operating income in the third quarter of 2022 will reach 5 trillion won (approximately US$3.5 billion), a year-on-year increase of 25.7%, and operating profit will reach 2.8 trillion won (approximately US$1.9 billion), a year-on-year increase of 22.4%. One important reason for HMM's performance higher than expected is the plunge in the Korean won against the US dollar exchange rate.
But according to the analysis of Nomura, Japan, due to the recent ease of port congestion on the US West Coast of , ship capacity has begun to be gradually released and put into the market, thereby increasing the market's capacity supply. Given that the ease of port congestion is faster than expected, Nomura Securities has predicted the SCFI index for 2023 from 1679 points were lowered to 874 points.
Nomura Securities said that due to the sharp drop in spot freight rates, HMM may suffer losses in 2024, and may even experience operating losses from the second half of next year. Historically, from 2015 to 2016, due to the decline in container freight rates, the operating performance of Asian container shipping companies was negative.
Nomura Securities said that if the Korean Industrial Bank sells HMM shares to private enterprise , it will be a potential risk for buyers under such a market prospect.
Previously, the Korean financial community revealed that potential buyers who acquire HMM include Posco Railway Group and Hyundai logistics company Hyundai Glovis. But at present, neither of these companies has clearly stated their acquisition intention. Nomura Securities said that in the short term, the sale of HMM will not take shape.
In addition, the South Korean government has planned to expand the $2.1 billion public ship investment fund jointly operated by South Korean Industrial Bank and South Korea's Marine Revitalization Commune to $3.6 billion. In order to cope with the possible recession in the maritime industry in the future, the South Korean government will set up a leasing company dedicated to ship purchase and leasing by 2026. (Wang Chu)
