Funding for Company Operation
Korean Air, Korea's largest national flag carrier, will issue 150 billion won (US$132.45 million) worth of 30-year Korean won-denominated hybrid bonds to raise funds for operation, according to investment banking (IB) industry sources on Nov. 25. This is the company's second private placement of corporate bonds this year alone.
The company raised 210 billion won (US$185.43 million) in perpetual bonds to renew its debts in June. It is planning to complete the issuance by Nov. 27. Since its credit rating of BBB+ hasn’t changed, the interest rate is fixed at 5.4 percent just like the one in June.
Korean Air can exercise a call option starting from 2020, two years after the issuance of the perpetual bonds. When the company decides not to exercise a call option, it has to pay an additional interest of 2.5 percent. Korean Air will also pay an additional interest of 0.5 percent every year under the step-up clause.
With the issuance, the company’s debt ratio can be improved as perpetual bonds are considered capital. However, it should make an early repayment in order to avoid high interest costs. This is why the perpetual bonds to be issued are practically considered two-year general corporate bonds.
Korean Air is continuing to raise a large amount of funds to repay its debts. The company raised 720 billion won (US$636.04 million) in November alone. It decided to exercise a call option on 330 billion won (US$291.52 million) worth of foreign perpetual bonds that were issued three years ago and redeem the bonds by the end of this month. Korean Air raised the repayment funds by issuing corporate bonds and asset backed securities (ABS). The company issued US$350 million (396.2 billion won) worth of ABS based on air freight bonds. It set the size corporate bonds at 170 billion won (US$150.18 million) and made the redemption on Nov. 23.