In Partnership with Mirae Asset Daewoo
HDC Hyundai Development Co. took over Asiana Airlines by suggesting a price of approximately 2.4 trillion won whereas the other bidders suggested less than two trillion won. It is too early to pop the champagne though. HDC and its partner Mirae Asset Daewoo are supposed to deal with important issues such as sales of Asiana subsidiaries from now on.
Asiana Airlines’ debt ratio amounted to 660 percent at the end of the first half of last year. In the first quarter of this year, the debt ratio soared to 895 percent with its aircraft operating leases classified as liabilities under new accounting standards. Then, the debt ratio was temporarily lowered by Korea Development Bank and the Export-Import Bank of Korea providing an emergency fund of 500 billion won. Down the road, the ratio is expected to be lowered to 315 percent once the airline’s capital increases to three trillion won after a paid-in capital increase.
Asiana Airlines’ interest burden is expected to decrease, too. At present, domestic credit rating agencies’ evaluation on it is BBB-, a default rating. Therefore, it is almost impossible for Asiana Airlines to issue bonds and a rate of as high as 8 percent or so is applied to three-year bonds even if it manages to do so. However, the rate can be lowered to about 3 percent once it becomes a subsidiary of HDC and its debt ratio is lowered.
The duration of the HDC-Mirae Asset partnership is another matter of interest. Mirae Asset participated in the tender as a quasi-strategic investor rather than a financial investor and it is planning to increase its shareholding in the airline to up to 20 percent by principal investment. In other words, it is going to participate in the management of the airline as its second-largest shareholder behind HDC. “A clash of opinions may arise between HDC and Mirae Asset regarding the management of the company and the partnership may break once Mirae Asset opts for disinvestment,” said an industry source.
How Kumho Petrochemical, the current second-largest shareholder, will move is drawing much attention as well. With HDC planning to conduct a capital increase of about two trillion won, Kumho Petrochemical’s shareholding is likely to fall from 11.12 percent to 3 percent or less unless it makes an investment. Although the petrochemical company has said that it is not interested in the acquisition, it is likely to try to maintain its influence on the airline. In this case, the management of the airline will be influenced by three large corporations.
Subsidiary sale is another important variable related to the future of the airline. Every sub-subsidiary must have a shareholding of 100 percent in a sub-sub-subsidiary according to the Fair Trade Act and Asiana Airlines, which will become a sub-subsidiary of HDC, must sell its subsidiaries Air Busan and Asiana IDT. At present, Asiana Airlines owns 44.17 percent and 76.22 percent of Air Busan and Asiana IDT, respectively.