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Restructuring

Korean Air to lend $950 mn to US hotel unit for debt repayment

Sep 17, 2020 (Gmt+09:00)

Korean Air Lines Co. will provide $950 million in loans to its fully owned US hotel operator which has $900 million in debt maturing this month, the company said on Sept. 17.

At a Sept. 16 board meeting, the carrier decided to extend the loans to Hanjin International Corp. which runs Wilshire Grand Center in downtown Los Angeles, for debt repayment and operating expenses.

The decision came amid stalled negotiations to refinance debt owed by the 73-story skyscraper that houses an InterContinental hotel, restaurants and office space.

The amount of the loan exceeds the $835 million the cash-strapped airline recently raised by selling its inflight duty free and meal service business to a domestic private equity firm.

The debt-ridden carrier also raised 1.1 trillion won in rights issue in July as part of its self-rescue plans in return for a capital injection of 1.2 trillion won from creditors in April. Its debt-to-equity ratio exceeded 1,000% at the end of June.

Korean Air will have to borrow $300 million from the Export-Import Bank of Korea, while coughing up its own money to the tune of $650 million to fund the fresh loan of $950 million to Hanjin International.

Wilshire Grand Tower in LA
Wilshire Grand Center in LA


 

Korean Air said it will be able to recover most of its loan amount to Hanjin over the next year.

The airline is currently in negotiations with a US investor to sell part of its stake in Hanjin International. If successful, the stake sale and a bridge loan linked to the deal will generate an additional $300 million for Hanjin, according to Korean Air.

For the remaining $350 million in loans, Hanjin International will tap financial markets to raise money next year when the hotel industry and the real estate market are expected to recover from the coronavirus pandemic, Korean Air added.

Korean Air spent as much as $1 billion in reconstructing the Wilshire Grand Center between 2009 and 2017. The carrier's former chairman, the late Cho Yang-ho, spearheaded the restructuring, saying the skyscraper represented “the culmination of my dream” at the 2017 opening ceremony. To fund the reconstruction, Korean Air issued new shares in several rounds, brushing aside objections from shareholders.

In July of this year, the US Bank Tower, adjacent to Wilshire Grand Center, was sold to a US developer for $430 million, a 34% discount to its fair value of $650 million estimated last year.

Shares in Korean Air closed down 1.6% at 18,900 won in Thursday afternoon trade, in line with a 1.2% drop in the benchmark Kospi. Airline analysts at local brokerages recently lifted their target prices for the airline above 20,000 won, citing the robust cargo business.

By Man-su Choe and Sang-eun Lucia Lee

bebop@hankyung.com

Yeonhee Kim edited this article

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