Asiana deal is still on, HDC insists

The stock price of Asiana Airlines has collapsed. Most of the carrier’s fleet is grounded. Despite all this trouble, and more, HDC Hyundai Development insists it still plans on acquiring the airline.

It also says that it is not looking for a lifeline from the main creditor bank and it is sticking to the original deal.

“Unlike the media reports, HDC hasn’t requested support from the Korea Development Bank [KDB],” said Kang Dong-suk of HDC’s corporate communications department. “We’re also not demanding change in the terms and conditions of the acquisition deal.”

HDC’s acquisition of the airline with Mirae Asset Daewoo couldn’t have come at a worse time.

The deal was signed in December, just before the pandemic hit Korea. Since then, most of the airline’s services have been suspended and the company’s share price has dropped about 25 percent.

Adding to the general decline of the business is a bureaucratic bottleneck that has been made worse by the outbreak. HDC needs to get the governments of a number of countries to approve the acquisition.

HDC earned the approval from the Fair Trade Commission last week, and Turkey has also signed off, but it still needs the United States, China, Russia and Kazakhstan to approve of the deal.

The outbreak of the coronavirus has made it difficult to get the green light from abroad, according to Asiana Airlines.

The HDC-Mirae Asset Daewoo consortium agreed to acquire 31 percent of Asiana Airlines from Kumho Industrial, as well as new shares to be issued and stakes in six related companies - including Air Busan and Air Seoul - for 2.5 trillion won ($2.23 billion).

HDC was to get 61.5 percent of the airline’s shares, while Mirae would secure 15 percent. HDC paid 4,700 won per share - lower than the airline’s 5,430 won share price at the time. Asiana Airlines on Wednesday closed at 3,505 won. If the deal goes through as planned, HDC is purchasing the airline at around 25 percent higher than the current market price.

HDC was scheduled to complete the purchase of Kumho Industrial’s 31 percent stake and newly-issued shares in two transactions in April. But HDC and Asiana Airlines agreed to postpone the initial payment and finalize the deal all at once.

The exact date for the payment remains undecided, according to Asiana Airlines.

The delay was announced on March 27.

Local media outlets, including the Korea Economic Daily, recently suggested that HDC requested financial assistance from the state-run KDB. The reports also suggest HDC requested changes in the acquisition conditions.

“HDC Chairman Chung Mong-gyu is seen to be waiting for emergency aid from the government,” said Prof. Hur Hee-young, who teaches business at Korea Aerospace University. “HDC seems to have let go of the deal for now.”

“The chance of the aviation industry recovering this year is unlikely,” he adds.

“Without the government help, Asiana Airlines will likely be bankrupt, putting all the company and affiliate employees as well as the local economy at a major risk. The effect of the bankruptcy will exceed expectations, as was seen in the case of Hanjin Shipping,” said analyst Jeong Yeon-seung from NH Investment & Securities.

Hanjin Shipping, which was the country’s No. 1 and the world’s seventh-largest container shipping company, went bankrupt in 2017. The bankruptcy was seen as having gutted the Korean shipping industry and forced a reliance on foreign shipping lines.

“The collapse of Asiana Airlines would result in the loss of a major transportation network,” said Hur. “Korean Air Lines doesn’t seem to be able to embrace all the routes Asiana Airlines flies. Those routes will be handed over to foreign airlines.”

“If HDC gives up on the acquisition, the financial burden will be passed on to the KDB because Kumho Industrial won’t be able to handle the business itself amid the current crisis in the aviation industry,” said Prof. Choi Jeong-chul who teaches at the Graduate School of Manufacturing Innovation at Inha University.

The Korea Development Bank and the Export-Import Bank of Korea last year provided 1.6 trillion won to the airline acquiring perpetual bonds and opening a credit line. The airline on Tuesday increased the limit on its credit line with the state lenders by 300 billion won to refinance maturing debt and to secure operation funds.

One analyst believes that once first-quarter results are announced, the credit rating of the airline will be downgraded and it will become difficult for the company to issue public bonds. If the debt to equity ratio is too far out of whack, creditors will be able to demand repayment. If Kumho Industrial isn’t able to make the payments, the company will default.

The airline said last month that it will put all of its employees on unpaid leave for 15 days this month. Its executives are taking 60 percent salary cuts, up from 50 percent in March.

BY JIN MIN-JI [jin.minji@joongang.co.kr]