IMM set to buy Hyundai Merchant Marine's LNG business

All four of Korea's leading dry bulk carriers are in distress as the global shipping industry remains mired in troubles that emerged during the global financial crisis. While Hanjin and HMM are raising capital through asset sales and restructurings, STX Pan Ocean and Korea Line have already filed for bankruptcy.

HMM said in a regulatory filing that the potential divestment of the LNG business to IMM is part of a rescue plan drawn up in December, which includes the sale of domestic and foreign assets. The sale is expected to be completed within six months.

HMM launched Korea's first LNG vessel in 1994 and is now the largest operator in the space, with eight vessels that between them transported 7.5 million tons of LNG in 2011 - approximately 22% of total domestic imports. It has long-term transportation contracts with state-owned Korea Gas Corporation. HMM is expected to post a loss for the third year in a row in 2014.

Hahn & Co. was previously selected as the preferred bidder for Korea Line through a bankruptcy court process but withdrew from the deal due to discomfort with certain contingent liabilities. The PE firm subsequently agreed to take a majority stake in a new joint venture comprising the Hanjin assets, paying KRW400 billion for its share and assuming KRW1.4 trillion in debt.

The global shipping industry's difficulties can be traced back to companies overextending themselves during the boom years, which led to massive overcapacity when the crisis hit. Overall fleet size increased by more than 75% between 2008 and 2013, while demand only grew 40%.

Industry analysts expect the global dry bulk segment to stabilize this year. A Citi report published in January noted that the demand-supply gap narrowed to a six-year low in 2013, supporting a more than 80% jump in the Baltic Dry Index since August. It estimates that rising iron ore shipments will see bulk trade demand rise 6.3% this year against fleet capacity growth of 6.2%.

Private equity investors are drawn to the industry largely due to Korea's continued need to import natural resources. The country was the largest buyer of LNG after Japan in 2012, purchasing 36.77 million metric tons, according to the International Group of Liquefied Natural Gas Importers.

IMM is currently investing its IMM Rose Gold Private Equity Fund II, which closed at KRW756 billion in December 2012 and is now more than 60% deployed. Last month the firm bought a 21% stake in cable operator T-Broad Holdings for KRW200 billion and is understood to be among the bidders for ADT Caps, the South Korean unit of US-based security systems specialist Tyco International.

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• Topics
• Buyouts
• Industrials
• North Asia
• buyout
• Commodities
• Logistics
• energy
• IMM Investment
• South Korea