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SM Line Increases Stake in HMM, Fueling Takeover Speculation

The Loadstar
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July 6, 2022

By Martina Li in Taiwan (The Loadstar) –

SM Line has expanded its hold on HMM after buying more shares, leaving the market to wonder if the rival South Korean ocean-going liner operators will eventually merge.

Last Thursday, SM Line purchased another 3.77m of HMM’s shares for KRW100bn ($76.6m), taking the Samra Midas (SM) group’s stake to 6.29%.

Other SM companies, such as Korea Shipping Corporation, Korea Line Corporation (KLC) and STX Construction, as well as group chairman Woo Oh-hyun, acquired HMM shares in a massive stock purchase on 20 June.

Cross-affiliate holdings are common in South Korea and are commonly viewed as a tactic for owners of local conglomerates, known as chaebols, to maintain control.

The SM group’s core business is construction, but its interest in shipping began in 2013 with its acquisition of KLC, which was under court protection. In 2016, it pipped HMM to acquire the remaining portfolio of bankrupt Hanjin Shipping, resulting in the establishment of SM Line.

A spokesperson for SM Line told The Loadstar its continuing purchasing of HMM’s shares, going back to December, was purely an investment and it had “no ambitions to acquire HMM”. And the company is not considering relaunching the IPO that was suspended in November.

SM Group remains HMM’s third-largest shareholder, behind state-backed Korea Development Bank (KDB) and Korea Ocean Business Corp, which hold 20.69% and 19.96%. Another state-controlled financial institution, Korea Credit Guarantee Fund, is HMM’s fourth-largest shareholder, with 5.02%.

Drewry’s senior manager for container research, Simon Heaney, believes that, while the SM group has become a ‘white knight’ in South Korea’s shipping industry, HMM enjoyed record profits as container freight rates reached historical highs in 2020 and 2021 and does not need rescuing.

He said: “South Korea has a plethora of carriers, but these two [HMM and SM] have the widest reach, geographically, so I can see why the speculation is brewing. Whether it is practical or not probably depends on SM’s resources. As the industry has boomed, so too has HMM’s valuation.”

While KDB chairman Lee Dong-gull has said the bank was inclined to dispose of its holdings in HMM, newly appointed minister of oceans and fisheries Cho Seung-hwan added last month it would be premature for the state to release its grip on the flagship carrier.

Separately, SM Line announced today that it had enhanced its Pacific Northwest (PNS) Service, which calls at Busan, Gwangyang, Yantian, Shanghai, Ningbo, Vancouver, Seattle and Portland, with an additional call at Canada’s Prince Rupert port.

PNS started in June, with six 6,500 teu ships. SM Line said: “Calling at Prince Rupert will not only contribute to securing additional US and Canadian inland cargo, but will also greatly help maintain punctuality due to the low congestion around the port.”

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