[비즈한국] The Korea Development Bank (KDB) has officially begun the sale of HMM011200 (formerly Hyundai Merchant Marine). POSCO Group and Dongwon Group are considered the primary candidates for the acquisition. Market sentiment leans toward a higher probability of Dongwon Group pursuing the deal, but given Dongwon's financial situation, the acquisition is far from guaranteed. HMM's sale price is expected to reach as high as 10 trillion won. Another variable is President Lee Jae-myung’s policy; the president is pushing for the relocation of HMM's headquarters to Busan. Since KDB is the largest shareholder, HMM is effectively under government influence for now. However, once the sale is finalized, the government will have no authority to force the relocation of HMM's headquarters.
POSCO and Dongwon Remain Tight-lipped on Specific Acquisition Plans
According to the financial sector, KDB recently sent out a Request for Proposal (RFP) to accounting firms to conduct a fair value assessment of HMM shares. Since taking office in September, KDB Chairman Park Sang-jin stated in a media interview that he "plans to speed up the privatization of HMM."
POSCO Group and Dongwon Group are the cited candidates for the acquisition. While both companies have shown interest, they remain cautious about sharing concrete plans. Some voices are opposing POSCO Group's acquisition. In September, the Busan Port Citizens' Association and the Busan Port Development Council pointed out, "If HMM is incorporated into POSCO, a steel-focused company, there is a risk it will be relegated to a subsidiary supporting the parent company's main business rather than receiving investment as a specialized shipping firm." They added, "Past domestic and international cases show that when large-volume shippers enter the shipping industry, it not only fails to reduce logistics costs through captive cargo transport, but also destroys the shipping ecosystem, causing damage to the national economy."
Dongwon Group has consistently shown interest in HMM. Honorary Chairman Kim Jae-chul said in 2023 that "acquiring HMM is the pinnacle of my dreams." However, it is difficult to guarantee an acquisition. Investment banking (IB) industry experts estimate the HMM sale price to be as high as 10 trillion won. For Dongwon Group, raising 10 trillion won is no easy task. According to its quarterly report, Dongwon Industries006040, the core subsidiary and holding company of Dongwon Group, held 493.4 billion won in cash and cash equivalents as of the end of September this year. This contrasts with POSCO Holdings005490, which held 7.1688 trillion won in cash and cash equivalents.
Park Jong-ryeol, a researcher at Heungkuk Securities, evaluated Dongwon Industries by saying, "Despite the owner's strong will to acquire HMM, they are in a situation where they must rely heavily on external financing due to the limitations of internal procurement capacity to raise acquisition funds."
Furthermore, given HMM's recent downward trend in performance and uncertain outlook, a high sale price could be burdensome. HMM's revenue fell by 4.23% from 8.5453 trillion won in the first three quarters of last year to 8.1838 trillion won in the same period this year, while operating profit dropped by 54.48% from 2.5127 trillion won to 1.1439 trillion won over the same timeframe.
Choi Ji-woon, a researcher at Yuanta Securities, commented on HMM, "With the continued delay of port entry fees and the burden of container supply, freight rates are expected to enter a phase of downward stabilization." Bae Se-ho, a researcher at iM Securities, also stated, "Because the uncertain and sluggish market conditions persist, even with the increase in shipping capacity, a significant improvement in performance is not expected."
The Issue of Relocating the Headquarters to Busan Remains Contentious
Another variable is the relocation of HMM's headquarters. President Lee Jae-myung is pushing a plan to move HMM's headquarters to Busan. Although HMM is a private company, it is not free from government influence as its largest shareholder is the state-owned KDB. Put differently, once KDB completes the sale of HMM, it will have no justification or authority to force a relocation. For the government, the relocation must be completed before the sale.
There is strong opposition within HMM against the relocation. The HMM land-based labor union protested, stating, "The government's attempt to force the headquarters of a private company to Busan is a major abuse of power that infringes on the autonomy of corporate management," adding that "it has a very serious impact on the survival of workers."
The government has begun efforts to persuade the HMM labor union. Former Minister of Oceans and Fisheries Jeon Jae-soo met with the union in November to hold discussions. However, with variables emerging, such as the former minister's recent resignation, it is expected to be difficult to reach a deal with the union in the short term. Meanwhile, if the sale of HMM is completed or significantly progresses, the relocation of the headquarters becomes even more difficult.
If the government forces the relocation before the sale, it could act as a variable in the sales process. The leading candidates, POSCO Group and Dongwon Group, have not publicly stated their positions regarding the relocation. However, since HMM employees are taking a hardline stance, if the headquarters is moved, the buyer will likely have to deal with the fallout, which is a burden for any acquirer.
Furthermore, if HMM moves to Busan, many employees may resign. When former President Yoon Suk-yeol pushed for KDB's relocation to Busan, a significant number of KDB employees left the company.
There are also concerns that HMM’s competitiveness could decline if it moves its headquarters. Since major domestic companies remain in the Seoul metropolitan area, critics point out that moving to Busan could be disadvantageous for negotiations with shippers and network management.
For the Lee Jae-myung administration, forcing a relocation before the sale could lead to difficulties in the deal, while moving it after the sale lacks justification and is hard to enforce. Failure to move the headquarters would leave the government open to criticism for failing to fulfill its campaign promises. Bizhankook reached out to KDB for comment on the matter but received no response.