Speculation about a possible union of the two South Korean cruise ship operators has increased after SM Merchant Marine (also known as SM Line) expanded its stake in HMM, and could further increase its stake this year.
On December 29, SM Line, which the Samra Midas Group (SM) formed in 2016 after acquiring the remaining operations from the bankrupt Hanjin Shipping, acquired an additional 613,438 shares in HMM for $ 14 million, bringing its holding to over 2.41 million shares, or 0.49%.
Another SM company, the bulk carrier operator Korea Shipping (formerly Samsun Logix), acquired by SM in 2017, owns more than 2.15 million HMM shares, or 0.44% of the capital, which means that the SM group now holds 0.93%.
SM played down discussions about the acquisition of HMM, insisting that the purchase of shares in SM Line was a pure investment. SM Line did not respond to The Loadstar request for comment.
The South Korean government became a shareholder in HMM in 2016, with a debt-for-stock swap to save the company from bankruptcy, and intends to sell its stake this year.
Xeneta chief analyst Peter Sand said The charging star whereas, while the liner operators had engaged in vertical integration by acquiring logistics companies, any further consolidation among the carriers seems to be excluded.
But he added: “In South Korea it’s different. That the government was backing a struggling flagship carrier and that SM Lines canceled an IPO at the last minute seemed odd. “
SM Line retired from listing in November, claiming mixed interest from investors, but Sand said that when it comes to container shipping in South Korea, politics play an important role. And he said that while SM Line’s interest in HMM was insignificant in value, it was symbolic.
“This surely makes SM Line in the circle of investors question whether the government’s stake in HMM should be sold.”
Linerlytica analyst Tan Hua Joo said The charging star that while the SM Group was considered a “white knight” in the South Korean shipping industry, HMM no longer needed financial support.
Mr Tan said: “I would not rule out further purchases of shares by SM Line, as HMM is relatively undervalued at this point. It would make sense for SM Line and HMM to merge, as these two lines are in competition in the same markets. “
The government, through political lenders Korea Development Bank and Korea Ocean Business Corp, owns around 44% of HMM shares, but this could exceed 70% as these institutions hold convertible bonds, which can be transferred into HMM shares.