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Airlines

KDB offers to ease HDC's financial burden in Asiana takeover as deal stalls

Aug 26, 2020 (Gmt+09:00)

State-run Korea Development Bank (KDB), the main creditor of Asian Airlines Inc., has unveiled proposals to ease the financial burden for HDC Hyundai Development Co. to acquire the beleaguered airliner. The deal was heading toward a collapse after the potential buyer apparently walked away from negotiations, demanding a change in acquisition terms.

During a meeting with HDC Chairman Chung Mong-gyu late on August 26, KDB Chairman Lee Dong-gull offered further loans to the preferred buyer, following already extended financial assistance worth 800 billion won in the form of perpetual bonds. According to sources at the creditor bank, KDB is considering 700 billion won in fresh loans, bringing the total to 1.5 trillion won.

That would help HDC to reduce its rights offering size to 1.5 trillion won from the original 2.2 trillion won it promised earlier to lower Asiana’s debt ratio when it takes over the carrier.

COVID-19 DERAILS TALKS

The latest meeting came after two other meetings between Chung and Lee to discuss ways to revive the deal fell through.

In December, the HDC-led consortium signed a deal to acquire a 30.77 percent stake in Asiana Airlines from Kumho Industrial Co., a construction unit of Kumho Asiana Group, for 2.5 trillion won (US$2.2 billion), including 2.2 trillion won in new shares to be issued.

The deal was  meant to be completed by June, but was delayed due to a new coronavirus outbreak. HDC wanted another 12-week round of due diligence on Asiana Airlines to ascertain the carrier's financial status amid the pandemic. But creditors and Kumho Industrial balked at the request.

HDC also cited the airline's snowballing debt as a factor in the renegotiations.

HDC, Asiana, KDB

Asiana's debt jumped by 4.5 trillion won from July last year to March this year, and its debt-to-equity ratio skyrocketed by more than 15,000% during the same period.

Sources close to the deal said on August 26 that KDB is considering opening a credit line with HDC for further financial assistance and may not redeem 800 billion won in perpetual bonds to improve Asiana’s debt status.

Another option is for KDB to exchange bonds for Asiana shares and sell them in the market, preferably to HDC, to help the new owner consolidate its control over the carrier, according to the sources.

BALL IN HDC’S COURT

“We discussed in great length ways to complete the deal with HDC. All options were put on the table at today’s meeting. We’re now awaiting a response from HDC,” the main creditor bank said in a statement.

Industry watchers say it’s uncertain whether HDC will accept the latest proposal by KDB and finalize the deal as the airline industry remains mired in a pandemic-initiated economic slowdown.

If HDC refuses to accept the KDB offer, the creditors may declare a collapse of the deal, put Asiana under their management for improvement, and then seek another buyer later, according to a KDB source.

Asiana has suspended most of its international flights as more than 180 countries have strengthened entry restrictions amid virus fears this year.

From January to June, the carrier's net losses deepened to 432.9 billion won from 267.4 billion won in the same period last year.

By Sang-eun Lucia Lee and Kyung-Min Kang

selee@hankyung.com

In-Soo Nam edited this article

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