HMM Co., South Korea’s largest shipping firm, will buy back and cancel 2.14 trillion won ($1.5 billion) worth of shares, paving the way for its two largest shareholders — Korea Development Bank (KDB) and Korea Ocean Business Corporation (KOBC) – to each recoup up to 1 trillion won in public funds.
The ocean carrier approved the buyback plan at an extraordinary shareholder meeting on Thursday to repurchase 81.8 million shares at 26,200 won each through a tender offer, according to its regulatory filing.
On Friday, its shares fell 2% to close at 22,100 won.
KDB and KOBC will participate in the share tender scheduled for Aug. 18 to Sept. 12, with HMM planning to retire the shares on Sept. 24.
The share repurchase, equal to 8% of its outstanding shares, marks the first chance for the two state-run bodies to retrieve part of taxpayer money since the collapse of a 6.3-trillion-won deal to sell a majority stake in the shipping company in 2024.
KDB and KOBC is HMM’s largest and second-largest shareholders, with stakes of 36.0% and 35.7%, respectively, worth 9.67 trillion won and 9.58 trillion won based on the current market value.
The number of HMM shares KDB can sell in the share tender will depend on the subscription rate among minority shareholders, who make up 28.3% of HMM’s outstanding shares.
KDB is estimated to be able to offload about 29 million to 41 million shares, raising between 771.9 billion won and 1.0769 trillion won.
Along with KOBC, the state-run lender has injected a massive amount of taxpayer funds into HMM, formerly Hyundai Merchant Marine Co., after it was placed under creditor protection in 2016 during a shipping industry downturn.
The company has bounced back in the wake of the COVID-19 pandemic amid disruptions to logistics and supply chains.
DRAG ON KDB’S FINANCIAL HEALTH
HMM shares have weighed on KDB’s capital adequacy ratio as equity holdings carry a higher risk weighting than other assets under the Bank for International Settlements (BIS) regulations.
KDB’s capital adequacy ratio was 14.52% at the end of September, slightly above the local regulatory guidance of 13%.
Selling part of HMM shares in the tender offer is expected to lift KDB’s equity capital ratio by 0.1 percentage point, boosting its lending capacity by over 2 trillion won through lower funding costs.
The buyback is in line with HMM’s value-up program announced in January, under which it pledged to return 2.5 trillion won to shareholders within the year. Of that amount, it has already paid 528.6 billion won in dividend.
HMM is considering additional share buybacks, with 15.74 trillion won in cash and cash equivalents as of the end of the first quarter.
FIRST STEP TOWARD PRIVATIZATION?
KDB may also look to offer its remaining HMM shares to a third party.
“Separate from KOBC, we’re weighing an option to sell our stake (in HMM),” said a KDB official, without elaborating further.
In the first half of this year, HMM posted a 19% drop on-year to 847.1 billion won in operating profit, hit by a drop in global shipping rates.
By Yeon-Su Shin
sys@hankyung.com
Yeonhee Kim edited this article.
