!.2 Tril. Won Liquidity Support to Be Approved Next Week

Korea Development Bank (KDB) and the Export-Import Bank of Korea (KEXIM) are likely to become the second largest shareholder of Korean Air.

The two state-run banks will hold a creditor meeting early next week to approve a plan to provide 1.2 trillion won in liquidity support to Korean Air.

On May 24, the creditors agreed to provide a total of 1.2 trillion won to Korean Air including a 200 billion won loan to be used as operating funds, purchasing asset-backed securities (ABSs) worth 700 billion won, the acquisition of 300 billion won in permanent bonds with the right to be converted into stocks.

Korean Air can redeem the permanent bonds early after two years have passed from issuance. The creditors have the right to convert permanent bonds to stocks on June 22, 2021. They are expected to make a decision on conversion based on Korean Air's share price after June 22, 2021. The permanent bonds to be issued by Korean Air will have maturity of 30 years and its initial interest rate will be set between 1 percent and 5 percent. Two years after the date of the issuance, 2.5 percent per year is added to the initial interest rate, with another 0.5 percent interest rate added every year from then on.

If the creditors convert permanent bonds to stocks, they can secure a stake of about 10.8 percent in Korean Air, becoming the second largest shareholder. As of the end of March, Hanjin KAL, the largest shareholder, held a 29.96 percent stake (33.35 percent if the stakes of special related parties are included), followed by the National Pension Service with a 9.98 percent stake.

The creditors plan to sign a special agreement with Korean Air next week based on the company’s restructuring plan. The creditors reportedly requested Korean Air to raise more than 1.5 trillion won.

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