"This Time, Creditors Step Up Financial Support for Korean Air"

Application for Fast-Track Corporate Bond Subscription Next Month... Negotiating Amount with Bond Banks
Creditors: "Intensive Self-Rescue Efforts by Major Shareholders Must Precede"

[Asia Economy Reporter Jo Kang-wook] As the aviation industry faces severe financial difficulties due to the novel coronavirus disease (COVID-19) crisis, it appears that creditor support for Korean Air will soon follow that of Asiana Airlines. The most likely support measure is the direct purchase of Korean Air’s corporate bonds. However, creditors such as the Korea Development Bank (KDB) are setting the prerequisite that the major shareholders must first make more proactive self-help efforts.

According to financial sources on the 22nd, Korean Air is currently negotiating the amount and other details with creditor banks to apply for the corporate bond rapid underwriting program next month. The corporate bond rapid underwriting program supported by creditor banks decides on inclusion through the refinancing issuance review committee. If Korean Air applies next month, the proposal will undergo review by the refinancing issuance review committee. If approved, KDB will underwrite up to 80% of the refinancing volume. The corporate bond rapid underwriting program, for which the final agreement ceremony with participating institutions is currently being prepared, involves KDB underwriting 80% of the total corporate bonds, while the issuing company must repay the remaining 20% on its own.

Financial circles estimate that Korean Air’s application amount will be around 500 billion KRW. This month, corporate bonds worth 240 billion KRW mature, and the minimum fixed monthly costs reach 400 billion KRW. Although Korean Air issued asset-backed securities (ABS) worth 622.8 billion KRW last month, it is expected to be fully depleted within this month.

A financial industry official said, "The creditors will likely consider additional financial support after Korean Air secures the necessary funds through the corporate bond rapid underwriting program and takes into account the early redemption amount of hybrid capital securities in the second half of this year. The detailed plan for direct corporate bond purchases to implement the rapid underwriting program will be announced soon next month."

Korean Air must repay approximately 4 trillion KRW this year, including corporate bonds, ABS, and borrowings. Of this, about 1.2 trillion KRW matures in the first half of the year. Korean Air has implemented various self-help measures, such as placing over 70% of its employees on six-month rotational leave and having executives return 30-50% of their monthly salaries, but the situation remains difficult. The company is also pushing for the sale of idle assets and non-profitable businesses, such as the Songhyeon-dong site and Wangsang Marina, recently selecting a consortium of Samjong KPMG and Samsung Securities as the sales lead managers. However, these efforts are insufficient to immediately extinguish the urgent financial fire. Therefore, Korean Air is reportedly considering a rights offering of up to 1 trillion KRW. It is interpreted that succeeding in the rights offering could make it easier to secure government support.

Korean Air has already requested government support both directly and indirectly. The creditors have received and are reviewing Korean Air’s financial status and related documents. This is a preparatory step before the government formulates support measures for large corporations or begins full-scale restructuring. However, the creditors are cautious, emphasizing the need for more active "actions" from major shareholders. While acknowledging the need to support Korean Air, they are concerned that public opinion is unfavorable due to the family’s abuse of power and management disputes, which could lead to controversy over preferential treatment for large corporations. Therefore, the creditors stress the major shareholders’ sharing of pain as a precondition for support.

A creditor official said, "We understand that Korean Air is considering simultaneously conducting a 1 trillion KRW rights offering and the corporate bond rapid underwriting program," adding, "Before support is provided, the major shareholders must take a more active stance in sharing the pain and making strong self-help efforts."

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