Asiana deal up in air as bank asks what buyer really wants

Industry

Published: 10 Jun. 2020, 19:18

Asiana deal up in air as bank asks what buyer really wants

Asiana Airlines planes parked at Incheon International Airport on Wednesday. Korea Development Bank (KDB) released a statement on Wednesday in response to Hyundai Development Company’s request to change the terms of its acquisition of the airline. KDB said HDC should be more specific about possible changes in terms. [YONHAP]

Banks supporting the rescue of Asiana Airlines are demanding details from the acquirer of the troubled carrier after the buyer indicated that it wants to renegotiate the terms of the transaction.

While the financial institutions are displeased with the request, they have little choice but to engage in discussions as a breakdown of the deal could leave them owning the airline.

On Tuesday, Hyundai Development Company (HDC) issued a statement saying that it is still interested in buying the carrier, but noting that the value of the asset has fallen significantly since it signed the deal and that the company is far more indebted as it borrowed heavily from two state banks.

Korea Development Bank (KDB) and Export-Import Bank of Korea together extended 1.7 trillion won ($1.43 billion) in loans to the country's second largest carrier in April. The airline has added a total of 4.5 trillion won in debt since HDC signed to acquire the airline in December last year.

HDC wrote in its Tuesday statement that the "acquisition conditions must be renegotiated from the starting point."

The deadline for the completion of the deal is June 27.

KDB responded to HDC's letter the following day with a statement of its own. It is not clear whether the banks and HDC are communicating directly.

"We demand HDC provide specific details first," the bank said in the statement, indicating, but not directly saying, that it would be open to reviewing those details.

“It would require a lot of negotiations among people of interest to confirm the conditions of the acquisition suggested by HDC," the bank added. "Written negotiations, suggested by HDC, create problems and raise questions about the sincerity of the acquirer.”

In the deal, the 30.77 percent of Asiana Airlines owned by Kumho Industrial plus new shares are to be acquired. HDC will end up with 61.5 percent of the airline’s shares, while Mirae Asset Daewoo was to own 15 percent. The offer price was 4,700 won per share — lower than the airline’s 5,430 won share price at the time. Asiana Airlines on Wednesday closed 4,350 won, down 2.03 percent.

“KDB sounds displeased, but it won’t be able to refuse HDC’s request because the buyer could back out of the deal,” said Prof. Hur Hee-young, who teaches business at Korea Aerospace University. “If that happens, creditors will likely proceed with another round of bidding. If no bidder comes forward, which is likely, creditors will have to convert the debt into equity.”

“Safety is of the utmost importance to an airline. But not having an owner could pose threat to the security of the organization, hurting the employment and possibly the safety of airplanes that are operated by pilots who could get fired,” Hur added.

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