[비즈한국] HMM011200 announced plans to build a “landmark-level new headquarters” in the North Port of Busan. Constructing a landmark-level building is expected to require significant costs. Given that HMM’s performance has been on a downward trend recently, this could place a burden on its finances. There are also concerns about finding ways to utilize the space after construction and the limited potential for appreciation in real estate value.
HMM announced at an extraordinary general meeting of shareholders on May 8 that it had passed a resolution to move its headquarters location from Seoul to Busan. HMM explained that it plans to complete legal procedures, such as registration of the relocation, during May. It also revealed plans to relocate the CEO's office to Busan within this year and to build a “landmark-level new headquarters” in the Busan North Port in the future.
The local community in Busan is showing interest in HMM's new headquarters. Busan originally planned to host the 2030 World Expo in the North Port, but with the failure of that bid, the redevelopment of the North Port has also hit a snag. Because of this, the North Port redevelopment is a hot topic among local politicians. Jeon Jae-soo, the Democratic Party candidate who ran for Mayor of Busan, pledged to build a domed stadium in the North Port, while Park Heong-joon, the People Power Party candidate, announced a pledge to build an 88-story tower in the North Port. In this atmosphere, HMM building a new headquarters in the North Port is expected to revitalize the North Port redevelopment.
HMM has not disclosed the specific scale of the new headquarters. However, the term “landmark-level” has raised expectations in the local community. Minister of Oceans and Fisheries Hwang Jong-woo expressed his expectations at a press briefing on May 14, saying, “Looking at the term ‘landmark-level’ for the new headquarters, I think it might be around 60 to 70 stories high.”
The problem is the cost. Constructing a 60-70 story office building will inevitably require substantial expenditure. The project cost for the 67-story Busan Lotte Tower was estimated at 450 billion won in 2019. However, the construction industry expects the actual project cost to exceed 1 trillion won due to significant increases in raw material prices and changes in design since then. If HMM builds a 60-70 story headquarters, it should also consider costs of over 1 trillion won.
According to the quarterly report, HMM's cash and cash equivalents were 1.7608 trillion won at the end of last year, but that figure dropped by more than half to 798.5 billion won by the end of March this year. Recent earnings are also in a slump. Revenue fell 4.76% from 2.8547 trillion won in the first quarter of last year to 2.7187 trillion won in the first quarter of this year, and operating profit decreased 56.17% from 613.9 billion won to 269.1 billion won during the same period.
Furthermore, the war between the U.S. and Iran is expected to act as an uncertainty. While there are positive outlooks that freight costs will increase due to the war, helping performance, there are also significant negative factors such as increased fuel costs. Ahn Do-hyun, a researcher at Hana Securities, analyzed, “Since there are no changes in cargo volume or supply due to the Middle East situation, we need to wait and see regarding the sustainability of current freight rates. Rather, if manufacturing costs rise, it is highly likely to have a negative impact on cargo volume, and it is fundamentally difficult to resolve the downcycle caused by increased supply.”
Another variable is the profitability of the building. Even if a 60-70 story building is constructed, HMM cannot use all the floors and must find tenants. Considering the reality that most major corporate headquarters are located in Seoul, finding tenants is not expected to be easy. In the case of Lotte World Tower, many Lotte Group affiliates such as Lotte Holdings, Lotte Chemical, Lotte Cultureworks, Lotte Biologics, and Lotte AMC have moved in. HMM does not have as many affiliates as the Lotte Group, and in fact, about half of its employees are maritime staff working in the field.
There is also a way to utilize some floors as hotels or entertainment facilities rather than using the entire new headquarters as offices. Some floors could be used for residential purposes like Lotte World Tower. However, Haeundae LCT is already playing a similar role in Busan. Considering that LCT was once unsold, it is difficult to say that there is high demand for luxury residential facilities in Busan. On top of this, when the Busan Lotte Tower is completed, the number of competitors will increase. However, some argue that entertainment facilities, rather than residential ones, will create a synergy effect across Busan.
It is also difficult to guarantee an increase in real estate value. The Busan real estate market is led by Suyeong-gu and Haeundae-gu. On the other hand, the North Port is located in Dong-gu. While it is not impossible for Dong-gu to develop in the future, the consensus is that it will not be easy to achieve the same value appreciation as Haeundae.
Korea Development Bank, HMM’s largest shareholder, plans to sell HMM in the long term. If the new headquarters does not generate the expected economic effects, it will negatively impact HMM's finances, which could be a burden for potential buyers. Given that the shipping industry is characterized by extreme fluctuations between boom and bust periods, the possibility of future losses cannot be ruled out. HMM has even recorded 20 consecutive quarters of losses from 2015 to 2020.
An HMM official responded regarding the specific scale, schedule, and funding plans, stating, “Nothing has been decided yet.”