Government's Restructuring Efforts Going Awry
HDC Hyundai Development has postponed its acquisition of Asiana Airlines indefinitely.
The company announced on April 29 that it would delay the acquisition of Asiana Airlines shares. It was scheduled to acquire the shares on April 30. But it delayed the date to “10 days after the prerequisites for transaction completion have been met” or “the day chosen by the two parties as the transaction completion day.” In other words, the company fell short of specifying the stock acquisition date, leaving the takeover schedule open.
The stock purchase agreement between HDC Hyundai Development and Kumho Industries stipulates that the deal needs approval from the Korean Fair Trade Commission and foreign countries. Asiana Airlines has requested approval for business combination from six countries including China and the United States. Russia has not yet approved the corporate marriage. HDC changed the takeover schedule citing the uncompleted approval procedure. Yet market observers say it is nothing more than a pretext.
They believe that HDC Hyundai Development will put more pressure on creditors to change the terms of the acquisition. It is asking creditors to extend the deadline for Asiana Airlines' repayment of loans, cut the interest rates, and convert loans into equities.
If HDC Hyundai Development postpones its Asiana Airlines acquisition indefinitely, the government’s push for restructuring of the aviation industry may not yield desired results.
Under the government’s restructuring plan, Korean Air is supposed to carry out intensive restructuring efforts on its own, while Asiana Airlines and Eastar Jet should pursue normalization by finding new investors. Support will be provided to low-cost carriers (LCCs) only after massive restructuring.
The delay in HDC Hyundai Development’s acquisition of Asiana Airlines could make the government's restructuring plan useless. Jeju Air's takeover of Eastar Jet has already been indefinitely postponed.
HDC Hyundai Development’s trouble is that the situation has changed a great deal. Initially, it planned to participate in Asiana’s 1.47 trillion won capital increase to repay the 1.17 trillion won loans from KDB and Export-Import Bank of Korea. In addition, it planned to finalize the acquisition process by this month by issuing additional bonds and obtaining acquisition financing.
However, as Asiana Airlines' management difficulties have deepened due to the spread of the new coronavirus (COVID-19), some say that it is better to give up the acquisition itself. Not only have Asiana Airlines' borrowings increased, its debt ratio has also risen since the end of 2019. Asiana Airlines is expected to lose more than one trillion won in 2020, including the massive losses it had suffered in the first quarter.
Those in the financial industry predicted that the acquisition of Asiana Airlines will be prolonged even if HDC Hyundai Development does not give up. Mirae Asset Financial Group, which partnered with HDC Hyundai Development as a financial investor, is suffering financial difficulties so its will to take over the airline has been weakened. Mirae Asset does not have sufficient funding due to losses from equity-linked securities (ELSs) and the ongoing negotiation for the acquisition of 15 hotels in the United States.
It is KDB that feels frustrated as the state-run bank has taken the lead in restructuring the airline industry. Recently, KDB accepted some of the demands from HDC Hyundai Development including pumping 1.2 trillion won into Asiana Airlines along with Export-Import Bank.
“Deteriorating situations in the airline industry is making it impossible to find another company to take over Asiana Airline,” said an aviation industry insider. “There is no silver bullet except receiving support from the government.”