Harim vows to use cash reserves for HMM’s growth

South Korean agri-food giant Harim Group reaffirmed its commitment to use container transportation and shipping company HMM's substantial cash reserves to bolster the shipping firm's global competitiveness as it moves close its acquisition deal, denying concerns about potential misappropriation of funds.

“We are committed to making strategic use of HMM's 10 trillion won ($7.7 billion) reserves to navigate the current challenges in the shipping industry effectively. This mirrors the practices of leading global companies like Mediterranean Shipping Company and Maersk, who are also fortifying themselves for the tough market ahead,” the group said in an official statement issued on Tuesday.

Harim Group, traditionally recognized for its leadership in the food and agriculture sectors, is expanding into the global shipping arena with its bid to acquire HMM, formerly known as Hyundai Merchant Marine. This strategic expansion builds on Harim's existing presence in the shipping industry through its subsidiary, Pan Ocean, a significant player in bulk and specialized shipping.

However, Harim could face a debt overhang in financing the acquisition, as the company’s cash and cash equivalents are approximately 1.6 trillion won -- far lower than the acquisition cost of 6.4 trillion won.

Industry insiders have expressed concerns that the cash reserves could be diverted to cover these debts.

In response, Harim reinforced its intention to minimize dividends, drawing parallels with its previous approach after the acquisition of Pan Ocean. For five years following the merger with Pan Ocean, Harim refrained from dividend payouts to strengthen the company's market position.

Additionally, Harim dismissed speculation about a potential merger between HMM and Pan Ocean, emphasizing its principle of promoting independent management among its affiliates.

Regarding the issue of convertible bonds, the group proposed a temporary suspension of bond conversion, a standard measure aimed at protecting stakeholder interests and resolving potential overhang issues. This proposal, part of the negotiation process from the pre-bid stage, is subject to thorough discussion during the finalization of the acquisition terms.

"We are concerned about the unfounded speculations and misunderstandings circulating about our acquisition of HMM. Within the confines of our confidentiality agreement as the preferred bidder, we must clarify that our focus is on the bigger picture -- to address the challenges in the shipping industry and elevate HMM's role as a national flag carrier,” said a Harim Group official regarding the statement.

Negotiations over the terms of the acquisition are ongoing, with a final agreement expected in the first half of the next year.