HMM, which had been considering re-acquiring Hyundai LNG Shipping, has put on hold for now its re-entry into the liquefied natural gas (LNG) transport business. Hyundai LNG Shipping originated from the LNG business institutional sector that HMM partitioned and sold off when it was Hyundai Merchant Marine.
At the time of the sale, HMM agreed to a noncompete clause and decided not to enter this field until 2029. Afterward, in 2023, HMM joined the bidding to acquire Hyundai LNG Shipping, seeking to re-enter the business. However, after dropping out of this acquisition race, it appears HMM will not take part in LNG transport for the time being. The conclusion was that the business outlook is not bright.
According to the shipping industry on the 27th, IMM Private Equity and IMM Investment signed a stock purchase agreement (SPA) with Frontier Resources, an affiliate of Indonesia’s Sinar Mas Group, to sell 100% equity in Hyundai LNG Shipping. The sale price is known to be about 400 billion won based on the equity amount.
IMM, which acquired Hyundai LNG Shipping for 400 billion won in 2014, is set to recover its investment at roughly principal level about 11 years later. IMM also sought a public sale of Hyundai LNG Shipping in 2023. At the time, it wanted 500 billion won, but bidders offered less, and the deal fell through.
In 2023, HMM discussed a sale price of around 460 billion won for Hyundai LNG Shipping. At the time, the company’s value was estimated at 200 billion won, and the future value HMM could gain, such as avoiding a noncompete clause, was estimated at 260 billion won.
The confirmed sale price for Hyundai LNG Shipping this time is lower than that. Since IMM prioritized selling Hyundai LNG Shipping domestically, HMM could have re-acquired it and returned early to the LNG business if it had wished.
The shipping industry cites HMM’s negative view of the outlook for LNG ocean transport as the reason. The judgment was that there is no need to rush to re-enter the LNG business by spending 400 billion won.
The LNG transport market has tailwinds such as large-scale LNG development by the U.S. Trump administration, but freight rates are falling due to the structural problem of oversupply, and this may persist.
According to The Export-Import Bank of Korea Overseas Economic Research Institute, the average spot rate (short-term rate reflecting market conditions) in the third quarter of this year for 145,000-cubic-meter (CuM) LNG carriers, an older class, was $5,769 per day, down 83% from the same period last year.
For the latest class, 174,000-CuM LNG carriers, the spot rate in the same period was also down 54% to $33,827. Early last month, the spot rate for the latest class even fell to $21,500, less than half the breakeven point.
This drop in rates is because LNG carriers ordered over the past several years are being delivered one by one, causing excessive capacity. Through 2027, more than 14 million CuM of LNG carrier capacity will be delivered each year. That means supply equivalent to over 10% of last year’s global LNG carrier capacity of 120 million CuM is being added annually. The scheduled deliveries for 2028 also reach 9 million CuM.
Because of this, the industry expects that even if new LNG production increases greatly, market improvement will be limited. Yang Jong-seo, a senior research fellow at The Export-Import Bank of Korea, said, “LNG transport demand will grow, but delivery of newbuilds is scheduled in even greater numbers, and the scrapping of older vessels is not progressing quickly,” adding, “From an energy security standpoint, it is regrettable that a national-flag carrier is being sold abroad, but there is no reason for other national-flag carriers to overstretch to buy it.”
An HMM official said, “There has been no particular progress since our participation in the public sale of Hyundai LNG Shipping fell through,” adding, “We considered various factors, including the sale price.”
Source: ChosunBiz