Asiana Followed by Korean Air Support "Subject to Major Shareholder's Self-Help Efforts" (Comprehensive)

Application for Fast-track Corporate Bond Underwriting Next Month... Negotiating Amount with Bond Banks
Creditors: "Support Possible Only After Major Shareholder's Strong Self-Rescue Efforts"

[Asia Economy Reporter Kangwook Cho] As the aviation industry faces severe financial difficulties due to the novel coronavirus disease (COVID-19) crisis, support for Korean Air is expected to follow soon after Asiana Airlines. One of the proposed support measures is the direct purchase of Korean Air’s corporate bonds. However, creditor banks including the Korea Development Bank (KDB) emphasize that proactive self-help efforts by the major shareholders must precede any assistance.

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 undergoes a review by the refinancing issuance review committee to decide on inclusion. If Korean Air applies next month, the committee will review the application. If the agenda passes, KDB will underwrite up to 80% of the refinancing volume. The corporate bond rapid underwriting program, which is preparing for a final agreement ceremony with participating institutions, 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, 240 billion KRW worth of corporate bonds 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 utilized within this month.

A financial industry official said, "The creditor banks are likely to 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 of hybrid bonds in the second half of this year," adding, "Detailed plans for direct corporate bond purchases under the rapid underwriting program will be announced soon for implementation next month."

The total amount Korean Air must repay this year, including corporate bonds, ABS, and borrowings, is about 4 trillion KRW. Among this, the amount maturing in the first half of the year alone reaches approximately 1.2 trillion KRW. Korean Air has implemented various self-help measures, such as placing over 70% of its employees on six-month rotational leave and executives voluntarily returning 30-50% of their monthly salaries, but the situation remains challenging. The company is also pursuing 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 lead manager for the sale. However, these efforts are insufficient to immediately address the urgent financial crisis. Therefore, Korean Air is reportedly considering a rights offering of up to 1 trillion KRW. Success in the rights offering is seen as potentially advantageous in securing government support.

Korean Air has already requested government support directly and indirectly. Due to the COVID-19 impact blocking international flights, additional ABS issuance has been halted, and with a lowered credit rating (BBB+), it has become practically impossible to raise funds independently outside creditor bank support. Korea Ratings maintained Korean Air’s credit rating at BBB+ last month but changed the outlook from 'stable' to 'under review for downgrade.' Additionally, Korean Air’s ABS credit rating was downgraded one notch from 'A' to 'A-.'

Currently, creditor banks including KDB are reviewing Korean Air’s financial status and related documents. This is seen as a preparatory step before the government formulates support measures for large corporations or initiates full-scale restructuring. However, creditor banks are cautious, stating that more proactive 'actions' from major shareholders are necessary. While acknowledging the need to support Korean Air, they are concerned that public opinion is unfavorable due to the major shareholder family’s alleged abuse of power and management disputes, which could lead to controversy over preferential treatment for large corporations. Therefore, creditor banks emphasize major shareholders’ sharing of pain as a prerequisite for support.

A creditor bank 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 providing support, major shareholders must demonstrate more active efforts in sharing the burden and implementing stringent self-help measures."

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