Cash from Pan Ocean may be used by its majority shareholder to help fund the acquisition of domestic shipping rival HMM, say analysts.
Harim Group, which has a 54.7% stake in Pan Ocean, is reported to be among four companies looking to acquire HMM in a sale being handled by Samsung Securities.
The other competing interests are also said to include SM Group, LX Group and Dongwon Group, according to investment banking sources quoted by local media.
The stakes in HMM for sale included a 20.69% stake held by Korea Development Bank (KDB) and a 19.96% stake held by the Korea Ocean Business Corporation (KOBC) which are estimated to be worth up to KRW 5trn ($3.9bn).
Harim is reportedly in discussions to form a consortium with local private equity firm JKL Partners, according to The Korea Herald. In 2015, the two firms acquired Pan Ocean.
“When asked during the earnings call, Pan Ocean’s management did not deny the news about Harim group’s participation in the tender to acquire HMM from KDB bank,” said Eon Hwang, Korea industrials analyst at Nomura.
“As a subsidiary of the Harim group, we think Pan Ocean’s cash may be placed as part of the acquisition financing if the group wins the bidding.
“Harim group’s HMM acquisition will only deplete Pan Ocean’s cash and will not lead to any value addition, in our view.
“Moreover, we note that Pan Ocean’s shareholder return policy has not been very active, with dividend yields of only 1% and 2.1% in 2021 and 2022 despite the share price decline of 12.6% year-to-date and the company having recorded KRW377bn of Ebitda in the first half of 2023,” he added.
Last week Pan Ocean reported a 60% year-on-year decline in second quarter net profit to KRW 91.9bn, while revenue was down 29% to KRW 1.2trn.
“Demand saw a modest recovery in the second quarter driven by rising shipments of iron ore and coal to China on the back of strong demand for infrastructure and construction as well as increased exports of soybeans and corn from Brazil’s abundant harvest contributed to the uptick in shipping volumes,” Pan Ocean said.
“However, the anticipated recovery in cargo volumes for the second half is expected to be constrained due to factors such as the sluggish Chinese economy, potential Chinese government policies to reduce steel production and a decrease in coal demand resulting from the stabilisation of LNG prices.”
Nomura’s Hwang said Pan Ocean shares currently trade at 0.53x price-to-book, which he says already “reflects the weak bulk market and investor concerns on unfavourable shareholder returns”.
Pan Ocean is South Korea’s largest shipowner and number five globally by owned fleet volume among shipping operators as of 2022, according to Clarksons.
Currently, the company which is predominantly a dry bulk operator controls a fleet of around 301 ships, 111 of which are owned and the remainder chartered in.
The company has a series of nine 174,000-cbm LNG carrier newbuildings on order for delivery in 2024, all secured against long-term charters from Shell and Korea Green LNG.
