Raising 2.2 Tril. Won to Stay Afloat
Korean Air came up with self-rescue measures against COVID-19. The measures, worth 2.2 trillion won in total, include ABS and perpetual bond issuance and a paid-in capital increase of approximately one trillion won. A total of 79.37 million shares will be newly issued at an issue price of 12,600 won per share and new share listing is scheduled for July 29.
In Korean Air, Hanjin KAL is the largest shareholder in possession of 29.96 percent of common stocks and the National Pension Service is the second-largest with a shareholding of 8.94 percent. The new shares will be preferentially allocated to them in the capital increase to give priority to shareholders before forfeited shares become available to the public.
At present, major shareholders such as Hanjin Group chairman Cho Won-tae have cash resources not enough to participate in the capital increase. If they do not participate, a large number of forfeited shares may hinder the company’s financial structure improvement. This has already occurred in Asiana Airlines four years ago. Hanjin KAL is considering various financing options, including asset disposal, loans and paid-in capital increase.
The self-rescue measures also include 1.2 trillion won in borrowings. Specifically, 700 billion won of ABS will be issued based on air cargo receivables and 300 billion won of perpetual bonds will be issued with stock conversion rights. In addition, asset-backed loans are scheduled to total 200 billion won.
Some point out that the measures will be less effective than expected as it takes a long time to find new owners for its idle assets and the value of its potential offerings already fell due to the COVID-19 pandemic. “The South Korean government is planning to invest at least one trillion won in the aviation industry and the amount is likely to increase,” said an industry insider, adding, “The self-rescue measures are a return for the plan and more detailed measures will come out after the additional support.”