Creditors of Asiana Airlines Inc. have decided to place the financially troubled carrier under their control after officially declaring the collapse of a deal to sell the company. The creditors also plan to funnel as much as 2.4 trillion won ($2 billion) from a state fund into Asiana to keep it afloat before seeking another buyer.
After a government-led meeting held on Sept. 11 on the fate of Asiana, Finance Minister Hong Nam-ki and other officials agreed to place the carrier under the control of its creditors — the state-run Korea Development Bank (KDB) and the Export-Import Bank of Korea. After graduating from a creditor-led debt workout in December 2014, Asiana is returning to their receivership for restructuring.
Asiana and its current owner, Kumho Industrial Co., a construction unit of Kumho Asiana Group, has notified HDC Hyundai Development Co., the preferred negotiator, of their decision to terminate the deal.
The aborted sale marks the country’s second botched deal in the coronavirus-hit airline sector this year, following Jeju Air Co.’s cancellation of its plan to acquire smaller rival Eastar Jet Co. in July.
The breakdown of sale talks was already flagged when HDC Hyundai Development repeatedly requested a second due diligence on the beleaguered airliner to ascertain the debt-ridden carrier’s financial status after most of its operations were paralyzed in the wake of the COVID-19 pandemic.
The creditors, however, rejected the request, offering instead a proposal to ease HDC’s financial burden in taking over Asiana, including fresh loans and a cut in the acquisition price by as much as 1 trillion won.
DEAL PLAGUED BY PANDEMIC, SNOWBALLING DEBT
The KDB and other creditors had previously extended a combined 3.3 trillion won, including 1.7 trillion won earlier this year, to Asiana to help the cash-strapped carrier stay afloat.
But the pandemic pushed the deal to the brink of a collapse as Asian suspended most of its flights on international routes since March. The airline’s snowballing debt also blocked negotiations from proceeding. In April, HDC discovered that Asiana’s debt jumped by 4.5 trillion won from July of last year to March of this year, and its debt-to-equity ratio skyrocketed by more than 15,000% during the same period.
In December, the HDC-led consortium signed a deal to acquire a 30.77 percent stake in Asiana Airlines from Kumho Industrial for 2.5 trillion won. The deal was meant to be completed by June of this year, but was delayed due to the coronavirus pandemic.
HDC Hyundai Development hasn’t reacted to the botched deal yet, but industry watchers say it could take legal action to demand a return of a 250 billion won deposit it paid in the initial stage of negotiations. In case of a legal dispute, HDC may also argue that its status as the preferred negotiator has been unjustly forfeited by the creditors’ decision to end talks, according to industry sources.
VIGOROUS REFORM IN THE OFFING
For the restructuring of Asiana, its creditors might be tempted to seek a capital reduction to hold Asiana’s major shareholders, including Kumho Industrial, responsible for their mismanagement of the country’s second-largest full-service carrier. Once the capital reduction is carried out, the creditors are expected to raise their stake in Asiana through a debt-equity swap to tighten their control of the carrier. Other reform measures, possibly including job cuts, are likely to follow.
According to government officials, the KDB-led creditors are considering some 1,000 buses and a bus terminal owned by Kumho Buslines Co., the de facto holding company of the Kumho Group, as collateral for further loans to Asiana.
The creditors are widely expected to seek another buyer after vigorous restructuring, but unlikely to embark on a resale process for the remainder of this year.
Sources said the KDB was unable to find potential buyers that can replace HDC and is expected to resume the sale process in the first half of 2021 at the earliest.
By Sang-eun Lucia Lee and Hyun-Woo Lim
<Edited by In-Soo Nam>