Korean Air Injects 2.2 Trillion Won... Laying the Foundation Amid COVID-19 Crisis

[Image source=Yonhap News]

[Asia Economy Reporter Yu Je-hoon] Korean Air, which is experiencing a difficult period due to the novel coronavirus infection (COVID-19), held a board meeting on the morning of the 13th and decided on a paid-in capital increase. With this capital increase decision, Korean Air is expected to secure about 2.2 trillion won in funds, including asset sales and government financial support, laying the groundwork to survive for the next several months.

Korean Air held a board meeting at 8 a.m. at its Seosomun headquarters in Jung-gu, Seoul, and decided on a paid-in capital increase of about 1 trillion won. This is the first time Korean Air has conducted a paid-in capital increase on the trillion-won scale.

Earlier, Korean Air faced a liquidity crisis due to the COVID-19 situation and had been continuously pursuing capital expansion through a paid-in capital increase in the range of 500 billion to 1 trillion won. The government also indirectly demanded additional self-help measures by deciding to provide 1.2 trillion won in financial support through KDB Industrial Bank and Korea Eximbank.

The Korean Air board decided to proceed with the paid-in capital increase through a rights offering to shareholders followed by a general public offering for any unsubscribed shares. The number of newly issued shares through the capital increase is 79,365,079 shares, and the expected issue price per share is 12,600 won.

After the capital increase, Korean Air's total issued shares will increase from the existing 95,955,428 shares to 175,320,507 shares. The final issue price will be confirmed on July 6, and the new shares are scheduled to be listed on July 29.

Additionally, on the same day, the Korean Air board discussed the execution plan for borrowing 1.2 trillion won in support from policy banks. It resolved to issue asset-backed securities (ABS) worth 700 billion won secured by air cargo accounts receivable, perpetual bonds worth 300 billion won with stock conversion rights, and plans to proceed with asset-backed loans of 200 billion won.

Following this board resolution, attention is also focused on how Hanjin KAL will raise the 300 billion won needed for the paid-in capital increase. As of the end of last year, Hanjin KAL's cash and cash equivalents were about 140 billion won, which is insufficient. With the shareholder coalition for Hanjin Group's normalization recently increasing its stake to 42.75%, the method chosen could affect the shareholding ratio.

Currently, it is analyzed that rather than Hanjin KAL conducting its own third-party allotment capital increase, which could trigger a shareholding competition, it is more likely to mobilize funds by borrowing against affiliate shares and assets as collateral.

Meanwhile, Korean Air is scheduled to announce its first-quarter earnings on the 15th in the afternoon. While the securities industry forecasts a loss in the 200 billion won range, some speculate that the deficit may have narrowed due to a sharp rise in air cargo rates and cost reductions such as employee furloughs. Reporter Yu Je-hoon kalamal@

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