Korea Ratings said that Korean Air Lines’ decision on January 5 to raise 450 billion won (374.84 million) through share capital increase will help improve its financial status, but not significantly.
In regard to Korean Air, the credit rating agency said on the 10th, “The paid-in capital increase will be positive in terms of cash flow, but it will only ease its financial burden caused by net loss last year. Korean Air posted 903.8 billion won (US$752.85 million) in operating profit until the third quarter last year. However, the company is expected to record a net loss of more than 500 billion won (US$416.49 million) considering a loss of 826.7 billion won (US$688.63 million) caused by support bonds related to Hanjin Shipping, net financial expense estimated at 360 billion won (US$299.88 million) and loss of 350 billion won (US$291.55 million) caused by foreign currency.
Kim Yong-gun, manager at Korea Ratings, said, “Due to external variables, such as oil prices, exchange rates, economy and diplomatic relations, the business showings of Korean Air this year can be slower than last year. In particular, the strong U.S. dollar can be a constraint for its financial stability.” The agency expected that the debt rate of Korean Air will exceed 1,000 percent as of the end of last year. For airline carriers, which have to pay a lot of costs in foreign currency, including oil expenses and airplane rent fees, the strong dollar is a negative factor of operating profit and non-operating income. In addition, 75.1 percent out of 15.3 trillion won (US$12.74 billion) of Korean Air’s total debt as of the end of last year are foreign currency loans. About 85 percent of them are dollar debts.
Korea Ratings said that it will adjust Korean Air’s credit ratings after monitoring its sales figures and improvement in financial structure this year. The company already sold all support bonds related to Hanjin Shipping worth 826.7 billion won (US$688.63 million). The problem is that Korean Air is confronting a heavy financial burden from the large-scale investment in introducing new airplanes and support for the group’s hotel and leisure businesses, according to Korea Ratings.
Meanwhile, there is a growing concern over Korean Air’s performance in the securities industry as well. Eugene Investment & Securities predicted that Korean Air will face a large-scale foreign currency translation loss in the fourth quarter and lowered its target stock prices from 34,000 won (US$28) to 27,000 won (US$22) on the same day. Bang Min-jin, an analyst at Eugene Investment & Securities, said, “The won-dollar exchange rate at the end of fourth quarter last year increased 110 won (US$0.09) from the previous quarter, so its foreign currency translation loss will reach 900 billion won (US$749.69 million). Considering this, Korean Air will record a net loss of 750 billion won (US$624.74 million) before tax.” The stock price of Korean Air in the securities market is traded at 26,200 won (US$22) as of 11:05 am, up 0.58 percent, or 150 won (US$0.12), from the previous day.