The conversion of KDB’s HMM shares will have a limited impact



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The conversion of KDB’s HMM shares will have a limited impact

Logo of the Development Bank of Korea (KDB)
Logo of the Development Bank of Korea (KDB)

KDB still considering future sale of HMM shares

By Anna J. Park

After the Korea Development Bank (KDB) converted its HMM convertible bonds into shares late last month, market watchers are closely following the state bank’s moves regarding the large stake in the global shipping company.

HMM’s public disclosure last week showed that the KDB exercised its right to convert 100 percent of the shipping company’s convertible bonds – worth 300 billion won ($ 264 million) – into 60 million on Monday. of common stock, so the state-run lender now owns 24.96 percent. of all HMM shares, ie 101.1 million shares.

Convertible bonds are a type of bond that can be converted into a specified number of common shares.

The number of those bonds that were converted into shares this time only represented around 22% of all HMM bonds held by KDB. The public lender still holds 208 million perpetual bonds issued by HMM, which offer the bank fixed rate interest with no maturity date.

Now the central question is whether the KDB will attempt to recoup the roughly 3 trillion won injected to ensure the survival of the shipping company five years ago, either by selling its stocks or by selling the company. Various conglomerates such as POSCO, Hyundai Motor Group and Hyundai Heavy Industries are selected as potential candidates for acquisition.

Unsurprisingly, KDB said nothing has been decided yet. The conversion of HMM’s convertible bonds in June was solely due to the fact that the predetermined period for the conversion was due to expire at the end of last month.

“KDB plans to thoroughly assess the problem and examine options,” a KDB official said by telephone. “It is still too early to say anything about the bank’s future plans, such as the sale of HMM. The remaining issues will be decided, after careful consideration.”

HMM's 24,000 TEU container ship / Courtesy of HMM
HMM’s 24,000 TEU container ship / Courtesy of HMM

Since the price of the converted bond was 5,000 won per common share, KDB made 2.3 trillion won in profit last week, or some 780% in terms of yield ratio, the closing price of HMM being 44,800 won. The newly issued shares will begin trading on the KOSPI market in approximately two weeks.

Some observers have expressed concern that the HMM share price could fall further due to the dilution of shares due to the new shares held by KDB and a possible massive block sale that could follow. The question is even more relevant when you consider that the share price has risen almost 10 times over the past year. This year alone, the share price has nearly tripled as charges for global shipping containers have skyrocketed due to increased shipping demand triggered by COVID-19.

However, market analysts say any dilution in equities due to suspended issues will likely be limited.

“A possible sale of HMM will not have much of an impact on determining the direction of stock movement. The heart of the global shipping industry depends on the sales and trade of ships,” a recent report said. of eBest Investment & Securities.

Other market reports have also pointed out that shipping costs are structurally increasing, as global port volumes continue to increase. HMM’s revenue for the second quarter is expected to reach 2.5 trillion won, an increase of 20.46 percent from the previous quarter. Operating profit for the second quarter is expected to be around 1.2 trillion won, an increase of 84 percent from the first quarter.



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