To Ride out Liquidity Crisis
Korean Air is promoting a capital increase of up to one trillion won to ride out its liquidity crisis ignited by the new coronavirus outbreak.
Korean Air is in talks with large securities companies such as NH Investment & Securities and Korea Investment & Securities to increase capital.
Currently, the largest shareholder of Korean Air is Hanjin KAL, which owns a 29.96 percent stake. When stakes of related parties such as Cho Won-tae, chairman of Hanjin Group, are included, Hanjin KAL’s stake rises to 33.34 percent. The rest is owned by institutional investors, including the National Pension Service, and minority shareholders,.
Korean Air is moving to increase capital as the government said that airlines need to proactively make financing efforts before it injects emergency funds into them. Earlier, the government said that major airlines should raise funds in the financial market on their own or make the most of their credit limits at financial institutions, with the state-run banks limiting their role to resolving their otherwise unmet needs for funds .
Korean Air considered several methods including issuing mezzanine bonds such as convertible bonds (CBs) and bonds with warrants (BWs). But it is difficult for the airline to raise funds on its own as the suspension of international flights has made it difficult to issue additional asset-backed securities (ABS) and its credit rating is low.
Korean Air has stopped services on more than 90 percent of its routes including international flights in the aftermath of the spread of the novel coronavirus. But it needs funds to cover fixed costs of 400 billion won to 500 billion won per month. Accordingly, Korean Air is implementing strong self-help measures such as selling idle assets, sending employees on six-month paid leaves, returning executives’ salaries, and the consideration of the sale of non-profit business units, but the burden of expenses such as matured borrowings and lease payments are putting mounting pressure on the airline. Korean Air needs to repay about 4.3 trillion won of debt in 2020. If this situation holds, Korean Air will face a drop in its credit ratings, which in turn increase the possibility of a default due to demands for early repayment of ABS.