Creditors of Asiana Airlines have decided to provide a total of 1.73 trillion won (US$1.51 billion) in loans to normalize the nation's second largest carrier.
Of the total, 1.6 trillion won will be directly provided to Asiana Airlines, while the remaining 130 billion won will be given to Kumho Busline, the holding company of Kumho Asiana Group.
Korea Development Bank, which is the main creditor of Asiana Airlines, announced the financial support plan on April 23.
Creditors will first buy back 500 billion won worth of permanent bonds to be issued by Asiana Airlines to help the cash-strapped company improve its financial structure and secure liquidity.
Permanent bonds are convertible bonds (CBs) that can be converted into stocks. If the creditors make a debt-for-equity swap, they will be able to hold about a 30 percent stake in Asiana Airlines.
The stake will be a "leverage" for creditors to lead the sale of Asiana Airlines in the future if Kumho Asiana Group fails to sell the airline.
The creditors will also provide 800 billion won in credit line and 300 billion won in stand-by line of credit.
KDB explained that the creditors have decided to provide loans to Asiana Airlines to ease management concerns during the M&A proces and prevent disruptions in flights.
The 1.6 trillion won support for Asiana Airlines will be borne by KDB and the Export-Import Bank of Korea at a ratio of 7 to 3.
In addition, creditors will provide 130 billion won to Kumho Buslines on the condition that Kumho Asiana Group sells off Asiana Airlines. The move is aimed at ensuring that the sale of the airline can be carried out as planned.
At the top of Kumho Asiana Group's governance structure is former group chairman Park Sam-koo, who controls Asiana Airlines via Kumho Engineering and Construction and Kumho Buslines.
Kumho Buslines, which is controlled by Park, took out loans from the secondary financial sector against its 45.3 percent stake in Kumho Engineering and Construction as collateral. In case Kumho Busline suffers from difficulty in repaying loans, the group’s governance structure could be shaken, which could lead to a situation where the subject of the sale becomes ambiguous.
The creditors plan to provide the funds to Kumho Buslines to help it repay 130 billion won in loans that mature on April 25 and hold the company’s stake in Kumho Engineering and Construction as collateral.
The creditors will sign a special agreement with Kumho Asiana Group by April 24 at the latest and sign a memorandum of understanding as early as next week.
The special agreement would allow the creditors to sell Kumho Engineering and Construction’s 33.5 percent stake in Asiana Airlines under any conditions if the group’s sale process fails.
The buyer of Asiana Airlines will be required to purchase Kumho Engineering and Construction’s stake in Asiana Airlines and participate in a capital increase.
Asiana Airlines’ subsidiaries will also be put up for sale together with the parent company. However, if requested by the buyer, the group can sell off the subsidiaries separately.
KDB expects Kumho Engineering and Construction to select a lead manager for its stake sale as early as this week and conduct due diligence for about two months before deciding on a detailed plan to sell the company.
As collateral for the creditors' financial support, Park will provide 4.8 percent stake in Kumho Buslines owned by his wife and eldest daughter and a 42.7 percent stake in Kumho Buslines held by Park and his son which was offered as collateral for loans to Kumho Tire. As Kumho Tire has been sold to a Chinese company, the collateral will be released.
Meanwhile, Park Jung-ho, president of SK Telecom, said SK Group is not interested in acquiring Asiana Airlines. The group has been named as one of the potential buyers.