Korean Air’s financing costs are forecast to snowball this year as its business performance is likely to keep deteriorating due to adverse market conditions.
This year alone, the company must repay a total of 4,354.2 billion won. For example, samurai bonds worth 5.1 billion won are scheduled to mature on Feb. 27, followed by debentures and asset-backed securities worth 240 billion won in April and 40.2 billion won in June. In addition, a call option date is scheduled for late this year with regard to hybrid securities worth US$300 million.
As of the third quarter of 2019, Korean Air’s cashable assets totaled 1,045.6 billion won. In other words, financing from the outside is inevitable. Its credit rating, however, is likely to adversely affect the financing. Last year, the company’s net loss amounted to 621 billion won, more than 300 percent of its net loss for 2018. Likewise, its debt ratio jumped from 743 percent to 904 percent. Its capital dropped from 3,751.1 billion won to 2,626.7 billion won from 2017 to 2019.
Its business conditions and management disputes are getting worse and worse this year. Credit rating agencies’ consensus is that its annual sales are likely to fall approximately 4 percent in the wake of Covid-19 and its credit rating is likely to be lowered this year.
Under the circumstances, the company is issuing more and more hybrid securities in foreign currencies as this type of issuance is an easy way of financing based on the payment guarantee of Korea Development Bank or the Export-Import Bank of Korea and requiring no global credit rating. Korean Air prepared an additional foreign currency bond issuance after US$300 million Eurobond issuance in August 2019. The preparation failed due to the lack of payment guarantee, and then the company increased its long-term borrowings.