KKR's HD Hyundai IPO Raises $547M, Targets 25% Growth

Key Takeaway

• HD Hyundai Marine Solution Co., backed by KKR, raised $547 million in South Korea's largest IPO in two years, with stock surging 97% on debut.
• The company targets a 25% annual revenue growth over three years, focusing on decarbonizing maritime industry and advanced ship retrofitting technologies.
• Proceeds from the IPO will fund expansion and technological advancements, including methanol-powered ships, aiming for revenues up to $50 million per project.

IPO Success and Growth Targets

HD Hyundai Marine Solution Co., backed by KKR & Co., has made a remarkable entry into the market with South Korea's largest initial public offering (IPO) in two years, raising about $547 million. The company's stock surged 97% on its first day of trading, elevating its market value to over 7.2 trillion won ($5.3 billion) and positioning it just outside the top 50 companies on the Kospi index. CEO Lee Ki-dong has outlined ambitious plans for the company, targeting a 25% growth in annual revenue over the next three years. This growth is expected to be fueled by investments in shipyards in Southeast Asia, increased warehouse capacity, and the development of greener vessel renovation technologies.

Decarbonizing the Maritime Industry

Hyundai Marine is setting its sights on the burgeoning market for maritime emission reduction, a sector gaining momentum as shipping firms face increasing pressure to decarbonize their fleets. With shipping accounting for about 3% of man-made CO2 emissions, the industry is under scrutiny from both customers and regulatory bodies, especially in Europe where carbon emissions trading has begun. Hyundai Marine aims to lead in retrofitting ships with advanced technologies, such as dual-fuel engines and converting old LNG vessels into Floating, Storage, Regasification Units (FSRUs), positioning itself a decade ahead of Chinese competitors in this field.

Strategic Investments and Technological Advancements

The proceeds from the IPO will be strategically invested in expanding the company's infrastructure and technological capabilities. Hyundai Marine plans to focus on a new market segment that requires cutting-edge technology for reducing carbon emissions from ships. This includes transitioning vessels to methanol-powered, dual-fuel ships, a move that not only aligns with environmental regulations but also opens up higher revenue opportunities compared to traditional retrofitting projects. CEO Lee Ki-dong highlighted the company's potential for significant earnings from these advanced retrofitting projects, with revenues up to $50 million per project.

Future Outlook and KKR's Role

Despite the impressive stock performance post-IPO, CEO Lee Ki-dong believes there is potential for further growth. The company is also preparing for a "soft exit" by KKR, which remains the top shareholder with a 24% stake post-IPO. Lee emphasized the cooperative relationship with KKR and the ongoing search for other investors to support future growth. The company's focus on greener technologies and the retrofitting of vessels to meet new environmental standards positions it well for continued success in the evolving maritime industry.

Management Quotes

• Lee Ki-dong, CEO of HD Hyundai Marine Solution Co.:

  "We showed at least 25% growth for the last six years from after-market business... We will show this growth for the next three years." "We are in talks with a number of shipping firms for potential orders to retrofit vessels into methanol-powered, dual-fuel ships." "About 80% of the market for retrofitting ships is for older-generation technology... Hyundai Marine is targeting a new market that requires cutting-edge technology to make ships emit less carbon..." "While replacing scrubbers costs about $2 million-$3 million per project, Hyundai Marine could earn higher revenues — up to $50 million — from replacing engines for dual-fuel vessels." "Ultimately KKR will exit, but it’s hard for me to say how long it’s going to take... We’re going to cooperate with them and continue to look for other investors as well."