Final throes of HMM sale… ‘Perpetual bond conversion issue’ emerges as a variable

Harim mobilizes demand for postponement of stock conversion for 3 years “Accepting Harim’s request violates fairness” Creditors say “We have never reviewed whether to postpone”

With the selection of a new owner imminent for HMM, Korea’s No. 1 shipping company, the issue of perpetual bond conversion into stocks has emerged as a last-minute variable. This is because, while Harim Group is expected to be the preferred bidder, Dongwon Group, another acquisition candidate, pointed out to creditors that there was a problem with the fairness of the bidding process. The creditors’ position is that they have never considered whether to suspend perpetual bonds and will decide on a preferred negotiating partner as soon as possible.

According to the industrial and investment banking (IB) industry on the 11th, Dongwon delivered an official statement to KDB Korea Development Bank and Korea Ocean Business Corporation on the 8th pointing out the unfairness of the HMM bidding process. Dongwon claimed in an official document that “the creditors were notified to present an acquisition price after assuming conversion of perpetual bonds into stocks,” and that “accepting Harim Consortium’s request to postpone the conversion of perpetual bonds into stocks would be a violation of fairness.”

In the main bidding held on the 23rd of last month, Korea Development Bank and Haejin Engineering & Construction submitted proposals to Dongwon and Harim for revisions to the desired acquisition price and shareholder agreement. The selling side included in the draft contract that dividends would be limited to 500 billion won per year for three years after the sale, and also requested that the two companies provide opinions on how to deal with the remaining perpetual bonds.

At this time, Harim Consortium reportedly requested that perpetual bonds not be converted into stocks for the next three years. If the creditors accept this proposal and select Harim Consortium as the preferred negotiating party, Harim Consortium’s 57.9% stake in HMM will be maintained and the company can receive up to 289.5 billion won in dividends annually for three years. If perpetual bonds are converted to stocks, the stake is 38.9% and the annual dividend is 194.5 billion won, but even higher dividends can be earned. However, Dongwon is known to have proposed a relatively conservative acquisition price assuming the conversion of perpetual bonds into stocks, and as a result, it has quoted a lower price than Harim. A Dongwon official said, “The creditors asked us to present a bid amount that reflects the conversion of perpetual bonds into stocks,” and added, “If it had been possible to delay the conversion of perpetual bonds into stocks, we could have raised the bid price even higher.”

The seller’s position is that it has not yet reviewed whether to postpone the conversion of perpetual bonds into stocks, as requested by Harim. A KDB official said, “Some people are talking about the possibility of the bid being rejected, but there is no change in our position to select a preferred bidder as soon as possible.” Harim Consortium did not take a specific position on Dongwon’s actions, which raised fairness issues with the selling side.

Meanwhile, there is controversy over the connection with the sale of HMM, as Harim Chairman Kim Hong-guk accompanied President Yoon Seok-yeol on his visit to the Netherlands that day. In response to this, Harim drew a line, saying, “It was a business trip to attend a business forum held by a trade association and the Federation of Dutch Industries,” and “(the visit) has nothing to do with HMM.”

If the sale goes to ruin, the possibility of re-bidding cannot be ruled out. In 2021, KDB Investment, a subsidiary of KDB, has a history of re-bidding against two companies, Jungheung Construction and DS Networks, that participated in the main bidding to sell Daewoo Engineering & Construction.

Reporter Kang Woo-seok [email protected]
Reporter Song Jin-ho [email protected]