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Low-cost carriers

Korean LCCs rush to stock market for fund on travel recovery hopes

Jeju Air, Jin Air plan rights offerings after Air Busan succeeds fundraising in stock market

By Oct 08, 2021 (Gmt+09:00)

Airliners of Jeju Air and Jin Air at Gimpo International Airport in Seoul
Airliners of Jeju Air and Jin Air at Gimpo International Airport in Seoul

Cash-strapped South Korean budget airlines are rushing to raise money in the local stock market on growing hopes for a travel recovery as governments in the globe are expected to relax movement restrictions with increasing vaccinations against the COVID-19.

Jeju Air Co., the country’s largest low-cost carrier (LCC), was set to raise 206.6 billion won ($173.1 million) through a rights offering on Oct. 18-19.

The airline was set to sell 11.3 million new shares, 29.3% of issued shares, at 18,350 won apiece, 20% lower than its closing price on Oct. 7, to existing shareholders and its employee stock ownership association. It also plans to open public subscriptions for forfeited shares on Oct. 21-22, if any.

Jin Air Co. also plans a rights offering for 123.8 billion won. The LCC unit of Korean Air Lines Co. aims to sell 7.2 million new shares, 16% of issued shares, at 17,200 won to existing shareholders and its employee stock ownership association on Nov. 1-2. Forfeited shares, if any, will be sold through a retail subscription on Nov. 4-5.

KEY BENEFICIARY OF “LIVING WITH COVID” STRATEGY

Those rights offerings are expected to draw strong interest from their shareholders since the airline industry is predicted to be one of a key beneficiary from global authorities’ plans to seek a strategy of “living with COVID” including a gradual relaxation of travel restrictions, according to the brokerage industry sources.

Large profits from their rights offerings last year are also likely to encourage shareholders to participate in the new share issues, the sources said.

Jeju Air issued new shares at 12,400 won apiece in August 2020 and its stock price jumped to around 28,000 won in June. Jin Air raised a fund though a rights offering of 7,000 won apiece in October 2020 and its shares surged to 26,000 won in May.

“Stock markets became more volatile since the Kospi fell below the 3,000 level. But declines in airlines stocks were limited,” said an industry source. “Still, shares (in the LCC with rights offering plans) may fluctuate if newly issued stocks are unloaded in the market.”

Air Busan Co., a LCC of Asiana Airlines Inc., last month raised 227.1 billion won through a rights offering.

The domestic budge airlines will use the proceeds from the rights offerings to repay debts, which have been mounting due to the COVID-19, and cover operating expenses such as aircraft leasing fees and fuel costs.

Write to Ye-Jin Jun at ace@hankyung.com

Jongwoo Chen edited this article.

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