IBK to Covert 1T Won of HMM Perpetual Bonds into Stocks

The long-awaited process of selling HMM, considered a major player in the merger and acquisition (M&A) market with an estimated value of up to 5 trillion won (US$3.91 billion), has officially commenced.

On July 20, the Industrial Bank of Korea (IBK) and the Korea Ocean Business Corporation (KOBC) issued a notice for the joint sale of HMM’s management rights, signaling the initiation of the formal sale procedure. This management rights auction will be conducted through a transparent and competitive bidding process adhering to the principles of fair competition as specified in the National Contract Act. The goal is to select a preferred negotiator through a second-round bid and sign a stock purchase agreement by the end of the year.

As part of this sale process, the two institutions have decided to convert 1 trillion won out of a total of 2.7 trillion won worth of convertible bonds and warrants into equity shares. The conversion is set to take place in October this year.

With the completion of the conversion process, the total shares to be sold amount to 390 million, accounting for approximately 38.9 percent of the diluted stake, including the perpetual bonds currently held by IBK and KOBC.

The decision to proceed with stock conversion for the sale comes in response to concerns that the outstanding perpetual bonds could pose obstacles to potential buyers and avoid potential allegations of misconduct. The exercise price for the perpetual bonds is set at 5,000 won, which is approximately four times the current market price of 23,000 won.

IBK and KOBC stated that they will decide in stages on the conversion of their remaining perpetual bonds based on HMM’s redemption rights. An official from IBK said, “We are committed to collaborating with the prospective acquirer to minimize any adverse effects on the market caused by the conversion process.”

Among the potential candidates for acquiring HMM are Hyundai Motor Group and POSCO Group. In particular, Woo Oh-hyun, chairman of SM Group, has publicly expressed his interest in acquiring HMM during a recent media interview.