Korean developer puts on hold $2.1 bn Asiana Airlines deal with no timeline

HDC Hyundai Development Co. has postponed its 2.5 trillion won ($2.1 billion) acquisition of Asiana Airlines Inc. with no clear timeline for the deal closing, which industry watchers say suggests the deal is on the brink of collapse.

In an official announcement on April 29, HDC delayed the deal closing, slated for April 30, until 10 days after all prerequisites are fulfilled, or to the date to be agreed upon by the parties involved. It cited uncompleted regulatory processes in Russia as the reason.

HDC signed an agreement in December 2019 to take a 76.5% stake in debt-ridden Asiana for 2.5 trillion won in a consortium with Mirae Asset Daewoo Co. Ltd. Under the agreement, HDC is supposed to acquire 61.5% of the airline for 2.01 trillion won, with Mirae Asset taking 15.0% for 490 billion won.

The indefinite delay comes after HDC put off the payment date on March 27, amid market talk that it called for a cut in the acquisition price and threatened to walk away from the deal.

The HDC-Mirae Asset consortium has also required Asiana’s creditor banks to roll over debts and reduce borrowing rates.

As the coronavirus pandemic has grounded more than 90% of international flights of domestic airlines, they are teetering on the brink of default with snowballing debts.

“HDC will finish the remaining processes quickly and complete the acquisition. We will do our best to normalize business of the airline to be acquired,” said an HDC spokesman after announcing the postponement of the deal.

Mirae Asset Daewoo has not responded to the HDC’s announcement yet.

CHANGE IN STANCE?

The latest delay seems to signal a clear change in HDC’s stance toward the deal.

“When HDC previously postponed the closing, it had provided a signal to the market that there was no change in its stance to buy (Asiana Airlines),” a financial industry source told the Korean Investors.

“But the atmosphere is different now. It gave no detailed timeline.”

The combination of Asiana Airlines and HDC has won approvals from five countries, including the United States and China, out of the six countries where they offer services. Given that, the uncompleted regulatory processes in Russia are seen just as a plausible excuse, the sources say.

Mirae Asset’s difficulty in closing a $5.8 billion purchase of 15 US hotels from China’s Anbang Insurance Group appears to have affected HDC’s decision to delay the Asiana deal indefinitely. Mirae has put on hold a plan to launch an aircraft leasing company.

Pan-Hyundai family companies, which were expected to provide 400 billion won to finance the acquisition of Asiana, voiced concerns about the aviation industry in their recent gathering and suggested HDC give up the acquisition, according to market sources.

HDC has paid a deposit of about 250 billion won for the Asiana deal.

In comparison, South Korea's Hanwha Group had abandoned a 6.3-trillion-won acquisition of Daewoo Shipbuilding & Marine Engineering Co. Ltd. in 2008 and received back half of the 315 billion won deposit after nine-year legal haggling.

“It means HDC, even if it gives up the acquisition, will not lose all its deposit,” said one of the sources.

Separately, South Korea’s largest low-cost carrier Jeju Air Co. Ltd., has put off the plan to buy a majority of domestic rival Eastar Air Co. Ltd. for 54.5 billion won in cash.

Jeju Air said in a regulatory filing on April 28 that the deal would be delayed until unmet prerequisites are fulfilled, without specifying the date for when it will close the deal.

Write to Jaehu Kim at hu@hankyung.com