KAL details plan to raise cash, aid Hanjin Shipping

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KAL details plan to raise cash, aid Hanjin Shipping

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Korea Air Lines, the nation’s top flag carrier under Hanjin Group, yesterday announced a plan to strengthen its finances while helping affiliate Hanjin Shipping, which is suffering a severe liquidity crunch.

The company said it held a board meeting yesterday and approved a restructuring plan to raise 3.5 trillion won ($3.3 billion) by selling assets.

The air carrier’s debt-to-equity ratio has been rising steadily in recent years and is now more than 800 percent. The ratio previously was about 400 percent, but it surged by 220 percent after new accounting standards were adopted, then was made worse by recent aircraft purchases.

KAL said it first will sell 30 million shares of S-Oil, the third-largest refiner, to secure 2.2 trillion won.

Hanjin Group bought a 28 percent stake in S-Oil in 2007 through Hanjin Energy, which was established by Hanjin Shipping, KAL and Korea Airport Service. Hanjin Energy will have 1.98 million shares of S-Oil once the deal is completed. KAL is the largest owner of Hanjin Energy with a 96.6 percent stake.

The S-Oil stock provides KAL with about 100 billion won annually. The company said it is in discussions about the sale with Saudi Aramco, S-Oil’s largest stockholder.

In addition, KAL said it will sell real estate and other assets to secure 1.04 trillion won. The airline will also raise 250 billion won by selling 13 old fuel-hungry aircraft like the B747-400 and B777-200.

The company said these plans will lower its debt-to-equity ratio to 400 percent by 2015.

“Sales of S-Oil stock should be completed by the first quarter of next year, while the sales of aircraft will be conducted in 2014 and 2015,” said Lee Sang-kyun, KAL’s chief finance officer, at the Korea Exchange headquarters in Yeouido, western Seoul.

However, Lee said the financial restructuring would not slow the company’s investment in new aircraft and real estate. KAL currently has 146 aircraft and gets about 10 new planes every year using 10-year loans.

Some of the cash raised will be used to help Hanjin Shipping, which needs to pay nearly 100 billion won of debt from commercial paper coming due this month and 390 billion in corporate bonds due next year.

KAL gave 150 billion won to Hanjin Shipping on Oct. 31 after holding stock as collateral. The air carrier yesterday said it will inject an additional 100 billion won and hold Hanjin Shipping Holdings’ stake of Hanjin Shipping as collateral.

However, the company said this will only happen when creditor banks give 300 billion won in three-year syndicate loans to Hanjin Shipping.

KAL also will enter Hanjin Shipping’s capital increase by issuing new stock next year to boost the company’s effort to resolve its liquidity crisis. The supported amount will be around 400 billion won.

KAL CFO Lee said after participating the capital increase, the air carrier will be the largest shareholder of Hanjin Shipping.

Currently, Hanjin Shipping’s largest shareholder is Hanjin Shipping Holdings, which is run by Chairwoman Choi Eun-young.


BY JOO KYUNG-DON [kjoo@joongang.co.kr]

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