Korean Air's Management Not Fully Normalized
The Export-Import Bank of Korea (Eximbank) has no plans to convert Korean Air's permanent convertible bonds it acquired in June last year into common stocks, according to media reports.
The state-run bank's stance is quite different from that of Korea Development Bank (KDB) regarding its holdings of the HMM convertible bonds. In June last year, KDB suggested it might convert the bonds into stocks because otherwise, it might be accused of a breach of trust.
Eximbank and KDB purchased 300 billion won worth of permanent bonds of Korean Air in June 2020, with Eximbank providing 120 billion won. The bonds can be converted into common stocks one year after their issuance.
The two banks convert their permanent bonds into 20,399,836 common shares starting from June 22. The conversion price is 14,706 won per share. Considering that Korean Air's stock price is 30,800 won based on the closing price on Oct. 14, the two banks can earn more than a 100 percent return on investment when they convert their bonds.
On the other hand, if the two banks do not exercise their early redemption rights until June 22, 2022, Korean Air will buy the permanent bonds. In this case, it is difficult for the two banks to avoid being accused of a breach of trust.
However, Eximbank has not yet mapped out a plan to convert the permanent bonds into common shares. "The permanent bonds were issued to help normalize the management of Korean Air," the bank said. "Now is not the right time to exercise the conversion right because Korean Air's management has not been fully normalized. We will continue to monitor the airline's management."