Support of 1.7 Trillion Won and Consideration of Permanent Bond-to-Equity Conversion... Positive Signal for Asiana Acquisition Battle

Saneun and Su-eun Consider Converting 500 Billion Won Perpetual Bonds to Equity Based on M&A Commitment

[Image source=Yonhap News]

[Asia Economy reporters Kangwook Cho and Jehun Yoo] Following KDB Industrial Bank and Korea Eximbank's decision to inject 1.7 trillion won in funds into Asiana Airlines, it has been confirmed that they are also considering converting 500 billion won worth of hybrid capital securities (perpetual bonds) into equity. This development has accelerated the momentum of HDC Hyundai Development Company's acquisition of Asiana Airlines, which had faced rumors of collapse since the COVID-19 pandemic.

According to sources in the financial investment and aviation industries on the 22nd, the creditors, including KDB Industrial Bank and Korea Eximbank, are positively reviewing the plan to convert 500 billion won worth of Asiana Airlines' perpetual bonds into equity (converting corporate debt into shares). Although the creditors feel the burden of holding shares in Asiana Airlines, they consider it an unavoidable choice to normalize the national airline and successfully conclude the merger and acquisition (M&A) deal.

Initially, HDC Hyundai Development Company planned to obtain corporate merger approvals from various countries overseas by the end of this month, participate in a 1.47 trillion won paid-in capital increase of Asiana Airlines, repay loans borrowed from KDB Industrial Bank and Korea Eximbank, and raise acquisition funds by issuing an additional 300 billion won in corporate bonds. However, this plan was halted abruptly due to the outbreak of COVID-19 earlier this year. With international flights, the main source of revenue, effectively shut down, concerns about Asiana Airlines' liquidity crisis emerged. At one point, there were market speculations that HDC Hyundai Development Company might forfeit the 250 billion won deposit and withdraw from the acquisition.

In response, KDB Industrial Bank and Korea Eximbank decided to inject 1.7 trillion won in new funds into Asiana Airlines to resolve the liquidity crisis. The support will be provided in the form of a credit line loan, similar to a "minus account," allowing funds to be drawn as needed. Since Asiana Airlines had already exhausted the 1.6 trillion won support provided by KDB Industrial Bank and Korea Eximbank last year, this measure aims to quickly put out the urgent fire within the year. For Asiana Airlines, which faces difficulties in issuing asset-backed securities (ABS) and corporate bonds, this is a much-needed relief.

Additionally, the creditors are considering converting the perpetual bonds into equity, a request reportedly made by HDC Hyundai Development Company. The 500 billion won in perpetual bonds supported by KDB Industrial Bank and Korea Eximbank last year had no repayment obligation but carried significant interest costs, posing a heavy burden on the acquirer, HDC Hyundai Development Company. The annual interest rate on Asiana Airlines' perpetual bonds provided by KDB Industrial Bank and Korea Eximbank was 7.2% for two years, adjusted to a 2.5% additional margin plus a variable rate from 2022. After five years, the interest rate increases by 0.5% annually. Converting these bonds into equity would reduce the hundreds of billions of won in annual interest expenses that HDC Hyundai Development Company would otherwise bear post-acquisition.

However, the prerequisite is the completion of HDC Hyundai Development Company's M&A, according to the creditors. A creditor official stated, "The conversion of Asiana Airlines' perpetual bonds into equity is not yet confirmed, but the creditors agree that it is necessary for the swift completion of the M&A," adding, "If HDC Hyundai Development Company requests this on the condition of M&A completion, we will positively consider it."

In the business community, there is speculation that the acquisition could gain momentum as the creditors have injected emergency funds into Asiana Airlines and are positively considering the perpetual bond issue, which was a demand from HDC Hyundai Development Company. A business insider said, "HDC Hyundai Development Company will enjoy a twofold benefit by saving 500 billion won in acquisition costs and reducing hundreds of billions of won in annual interest expenses," adding, "Since the demand has been largely accepted and the creditors are making it conditional on M&A confirmation, the acquisition could accelerate."

This content was produced with the assistance of AI translation services.