Activist fund Korea Corporate Governance Improvement (KCGI) and mid-sized builder Bando Engineering & Construction have succeeded in their public tender offer for 1.2 million warrants in Hanjin KAL, the parent company of Korean Air.
The tender offer came in July amid an ongoing feud to gain control in Korean Air between Chairman Cho Won-tae and the three-party shareholder alliance set on overhauling the company’s governance structure. The alliance includes KCGI, Bando and Cho Hyun-ah, former vice president of Korean Air and Chairman Cho’s elder sister.
On July 3, Hanjin KAL issued 300 billion won worth of bonds with 3.63 million detachable warrants to secure funds for Korean Air’s capital increase. This was part of the cash-strapped carrier’s self-rescue measure to raise 1.15 trillion won by issuing new shares aided by Hanjin KAL’s participation.
KCGI had asked Hanjin KAL to allocate new shares to existing holders, but the parent company opted to issue warrants. This prompted the public tender as KCGI’s existing shares would be diluted if the BW holders converted their warrants into common shares, according to an investment banking industry source.
KCGI said it would buy in 1.2 million warrants, which is 33% of the circulating warrants.
Investors actively participated in the tender, seeing it as an opportunity to dispose of Hanjin KAL warrants at a higher-than-market price. The public tender price proposed by KCGI was 25,000 won per share, which is 42.8% higher than the warrant price of 17,500 won as of August 12.
The successful tender will increase the alliance’s 446,235 warrants to 1.64 million warrants. They will be able to acquire an additional 1.48% stake after paying the exercise price of 82,500 won per warrant.
This will boost the alliance’s combined stake in Hanjin KAL to 45.23%, slightly above the combined shares of 43.83% of Cho, his affiliates, and their white knight Delta Airlines.
The KCGI-led alliance has been committed to winning the proxy fight against the incumbent management. The alliance failed to replace the company’s board members, including Chairman Cho, at the annual shareholder meeting in March.
KCGI first purchased shares in Hanjin KAL in November 2018, making headlines as it was the first time a domestic private equity fund had contested the management of a local conglomerate.
By Jin-sung Kim
<Edited by Danbee Lee>