HDC Rejects Creditors' Offer to Cut Sale Price
HDC Hyundai Development Co.’s planned acquisition of Asiana Airlines has fallen through as the preferred bidder refused to accept creditors’ latest offer to cut the sale price.
Korea Development Bank (KDB), the carrier’s main creditor, said the deal has collapsed. “We believe HDC has no intention of acquiring Asiana Airlines,” a KDB official said. The bank is expected to inform HDC early next week of its decision to end talks.
The collapse of the deal has been expected. The difference of opinions between HDC Hyundai Development and Kumho Industrial, which owns the beleaguered airline, has not narrowed for months. HDC has consistently called for another round of due diligence. On the surface, it said that it could not trust Kumho Industrial, but its true intention appeared to be to invent excuses for declaring the collapse of the deal.
HDC cited the deterioration of Asiana Airlines’ financial conditions and financial support for insolvent affiliates and negative audit opinions from outside auditors as reasons for a second round of due diligence. It felt that it would need more funds after acquisition to normalize the struggling airline.
HDC appears to be prepared for the possibility of a legal battle following the collapse of the takeover talks. In 2008, a lawsuit was filed by Hanwha Group to get back the performance deposit after its bid to take over Daewoo Shipbuilding & Marine Engineering fell through due to a delay in contract signing. At the time, the Supreme Court accepted Hanwha's claim that it did not have a chance to conduct due diligence and ruled that some of the deposit and delayed interest should be returned to Hanwha.
With the deal's breakdown, creditors are expected to activate a plan B. Asiana Airlines is likely to enter into a voluntary agreement with creditors again as it did 10 years ago. In this case, creditors will become the largest shareholder of Asiana Airlines through a debt-for-equity swap and revamp it.
KDB holds 800 billion won worth of perpetual bonds of Asiana Airlines. If these bonds are converted to equity, the bank’s stake will amount to 37 percent, higher than Kumho Industrial’s 31 percent.
The creditors have also begun discussing a capital reduction on Kumho Industrial’s stake. They are also discussing a plan to normalize Asiana Airlines' management by providing new funding at the same time.
The creditors and Asiana Airlines are also expected to apply for support from the Key Industrial Stabilization Fund as early as this week. The airline is expected to receive up to two trillion won from the fund this year. This is because Asiana Airlines' financial difficulties have continued for a long time and the collapse of the takeover deal could lead to a default of asset-backed securities (ABSs) and an early repayment of debts.
"The creditors are expected to resume efforts to sell Asiana Airlines once situations improve," an industry analyst said.
Meanwhile, the creditors have kept mum on HDC Hyundai Development's request for a second round of due diligence. This may spark off criticisms over who are to blame over the abortion of the M&A deal.