Hanjin KAL Required to Obtain Consent on Management Issues
State-run Korea Development Bank (KDB) has tied a noose around the neck of Hanjin KAL, the holding company of Hanjin Group, in return for investing 800 billion won in it to facilitate Korean Air’s acquisition of Asiana Airlines.
KDB signed an investment agreement worth 800 billion won with Hanjin KAL, the parent company of Korean Air, on Nov. 17. KDB’s investment is the first step in its three-phase funding plan to complete Korean Air’s takeover of Asiana Airlines.
The bank attached strings to the investment agreement. Hanjin KAL is required to appoint three outside directors and auditors picked by KDB. Hanjin KAL is also required to consult KDB in advance about key management matters and obtain KDB’s consent.
Through the investment deal, KDB is expected to hold a 10.66 percent stake in Hanjin KAL. As KDB will become a major shareholder, the lender intends to strongly supervise Hanjin KAL's management by appointing board members and exercising its consenting right on major management matters. "We may replace or dismiss executives (including Hanjin Group chairman Cho Won-tae) for their poor management," said Choi Dae-hyun, KDB vice president.
KDB has also decided to restrict Hanjin KAL’s provision of its Korean Air stocks as collateral. But it is up to Hanjin KAL to set up and implement a post-merger integration (PMI) strategy after the acquisition.
A violation of the investment agreement containing such obligations is subject to a total of 500 billion won in penalties and damages. As a further guarantee, KDB has secured the right to sell off new shares to be issued by Korean Air.