KDB betting on Korean Air-Asiana merger success

Finance

Published: 20 Jun. 2023, 19:25 Updated: 20 Jun. 2023, 21:45

KDB betting on Korean Air-Asiana merger success

Korea Development Bank Chairman Kang Seog-hoon speaks at a press conference held to celebrate his first anniversary in the office in Yeouido, western Seoul, on Tuesday. [KDB]

Korea Development Bank (KDB) does not have an alternative for Korean Air Lines’ acquisition of Asiana Airlines, even if the deal potentially doesn’t go through.

“The bank isn’t considering a Plan B for the Korean Air Lines’ acquisition of Asiana Airlines deal at alll,” KDB Chairman Kang Seog-hoon said during a press conference held at the bank's headquarters in Yeouido, western Seoul, on Tuesday to celebrate the first anniversary of his chairmanship.

“We currently have all hands on deck to ensure the deal goes through, not prepare for” its potential collapse, Kang added.

KDB announced in 2020 that it would finance 800 billion won for Hanjin KAL, Korean Air's parent company, to help the carrier acquire debt-laden Asiana Airlines following the Covid-19 outbreak.

The acquisition process faced a setback in May when the EU expressed concerns that the merger would restrict competition in the provision of passenger and cargo air transport services between the European Economic Area and Korea.

The airline is awaiting the deal's approval in the United States, EU, and Japan after receiving the green light from 10 countries.

“I’m very careful about predicting how the situation will unfold. But it wouldn’t have taken this long if the deal was easy to approve or it wasn’t going to work.” Kang added that he spoke with antitrust regulators in the EU in January and the U.S. Department of Justice in May on the need to push through the deal.

The bank expects the approval to be finalized by the third quarter at the earliest, although this could be delayed.

The bank will make a decision for a 20.69 percent stake in HMM, Korea’s largest container shipper, “soon.”

“Signing the stock purchase agreement could be possible this year,” said Kang, while confirming some firms are interested in buying the stake.

HMM’s net profit sharply fell to 285 billion won in the first quarter, down 90 percent on year. The shipper’s profit surged last year on freight rates that rose on all routes amid the post-pandemic recovery.

Kang said losses suffered by the state-run Korea Electric Power Corp. (Kepco) is pulling down the bank's BIS capital adequacy ratio, which is considered a key barometer of financial soundness. KDB holds 32.9 percent of the electric utility firm, which suffered 4.9 trillion won in net loss during the first quarter.

KDB’s capital adequacy ratio fell by 2.85 percentage points to 13.11 percent in the first quarter thanks to Kepco’s losses. The recommended ratio by the Financial Supervisory Service is 13 percent.

“How the international market will view us is concerning if our ratio falls below 13 percent,” Kang said.

The government raised the electricity rates by 8 won per kilowatt-hour in May to counter a snowballing deficit at state-run utilities.

KDB faces strong internal backlash from employees on its plan to relocate its office to Busan, the latest government effort to decentralize economic and political power from Seoul to other cities.

The bank will “closely communicate with the National Assembly while actively taking the labor union and employee’s opinions into consideration regarding our plans to relocate to a suburban area,” Kang added.

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