HDC says due dilligence has to be redone in Asiana deal

Asiana Airlines fleets parked in Incheon International Airport. [YONHAP]

Hyundai Development Capital (HDC) has requested a three-month re-evaluation of Asiana Airlines and its affiliates to reconsider contract terms for acquiring Korea’s second-largest air carrier.

On July 24, HDC sent an official message to Asiana Airlines and parent company Kumho Industries saying prerequisite conditions for the deal’s closure were unmet and suggested due diligence needs to be carried out on the airline for a 12-week period starting next month, HDC said in a Sunday statement.

This is the first time in a month that HDC has broken its silence on the deal after corporate heads at HDC Group and Korea Development Bank (KDB), the airline’s main bank, had a one-on-one meeting on June 25. The statement comes in response to a recent letter sent from Asiana creditors and KDB urging HDC to speed up in closing the deal.

According to an agreement signed December, the HDC-led consortium planned to acquire a controlling interest in Asiana Airlines by June 27. But that deal didn’t go through as the companies waited for approval from Russia and HDC asked for a renegotiation from scratch.

Asiana creditors, including its main bank, later said it will relax the conditions in HDC’s favor once the consortium makes a decisive move to acquire the airline. But this wasn’t enough to bring the two sides together.

“There needs to be a reevaluation of the circumstantial differences of when the acquisition contract was signed and the current state. Renegotiations on the acquisition terms can only start upon an accurate understanding of the changed situation,” HDC said, adding its original intention of merging with the airline remains intact.

HDC also listed grounds for the due diligence request.

The airlines’ debt and net loss had greatly increased since the deal was inked — Asiana had taken out more loans without the acquirer’s consent and paid out to support affiliates. The company had made the same argument in June; that Asiana’s value was greatly affected by the Covid-19 pandemic — therefore the deal needs to be re-evaluated.

“Since early April, we’ve sent more than 10 official documents to Asiana and Kumho detailing information that needs to be reinvestigated. More than 100 days have passed and we’ve not received an official response nor a basic contract form,” HDC said Sunday.

Asiana Airlines, its creditors and HDC have struggled to see eye-to-eye in recent months as either side rejects the other’s claims on why the deal hasn’t going through. The HDC and Mirae Asset consortium signed a stock purchase agreement on Dec. 27 to acquire a 30.77 percent stake in the second-largest airline at 322.8 billion won ($268.6 million). The Covid-19 pandemic has essentially brought that deal to a standstill.

Last week, another big acquisition deal in the airline industry fell apart. Jeju Air announced it would abandon its merger of cash-strapped Eastar Jet, saying there were too many uncertainties.

BY YEOM JI-HYEON, SONG KYOUNG-SON [song.kyoungson@joongang.co.kr]