Hanjin KAL Participates in Korean Air Capital Increase... "Will Sell Assets and Secure Collateralized Loans"

[Image source=Yonhap News]

[Asia Economy Reporter Yoo Je-hoon] Korean Air, which is facing a crisis due to the novel coronavirus infection (COVID-19) outbreak, has decided to proceed with a 1 trillion won rights offering, and its parent company Hanjin KAL has decided to participate in the rights offering. On the morning of the 14th, Hanjin KAL held a board meeting at its Seosomun office in Jung-gu, Seoul, and resolved to participate in Korean Air's rights offering. Cho Won-tae, chairman of the Hanjin Group, was absent from the board meeting that day.

Earlier, Korean Air had resolved at its board meeting the day before to conduct a rights offering worth 1 trillion won through a shareholder preferential allotment followed by a general public subscription for any unsubscribed shares. Considering Hanjin KAL’s 29.96% stake in Korean Air, the cost required for Hanjin KAL to participate in the rights offering is approximately 300 billion won. A Hanjin KAL official explained, "Hanjin KAL plans to subscribe for more than its shareholder allotment in this rights offering to maintain its current stake of about 30% in Korean Air," adding, "In this case, about 300 billion won in funding will be required."

The problem is that Hanjin KAL’s financial resources are not ample. As of last year’s consolidated financial statements, Hanjin KAL’s cash and cash equivalents amounted to 141.2 billion won. Given that a significant amount of cash was likely used during the difficult first quarter of this year due to the COVID-19 impact, additional fundraising is expected to be inevitable.

Accordingly, Hanjin KAL plans to secure funds through asset sales and secured borrowings. Besides Korean Air, Hanjin KAL owns subsidiaries such as Hanjin Co., Ltd. (23.62%), Jin Air (60.00%), Jungseok Enterprise (48.27%), and Kal Hotel Network (100%). Jungseok Enterprise, which manages group-related real estate, holds many valuable assets. A Hanjin KAL official stated, "We will hold a separate board meeting to decide on future financing plans."

Rights offerings involving third parties are currently off the table. This is interpreted as considering the difficulty of finding a white knight under current market conditions and the ongoing management rights dispute with the "Shareholder Coalition for Hanjin Group Normalization (the three-party coalition)." The three-party coalition has also communicated to Hanjin KAL that a third-party allotment rights offering is unacceptable.

An official from the business community said, "Hanjin KAL’s own rights offering was not an easy situation as it required consultation with the three-party coalition. Hanjin also stated that it would avoid a shareholding competition," adding, "Since the required funding amount has decreased, they will raise funds by taking loans secured by shares and assets."

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