HDC Hyundai Development, Long Road to Agreement on Asiana Acquisition... Debt and Other Obstacles Everywhere

[Asia Economy Reporter Yoo In-ho] HDC Hyundai Development Company (Hyundai Development), which had remained silent despite the creditors' continuous demands for a statement, officially requested a change in the contract terms for the acquisition of Asiana Airlines on the 9th, signaling that negotiations between the creditors, including KDB Industrial Bank, and Hyundai Development are expected to intensify.

Hyundai Development's statement appears to be based on the judgment that it is no longer possible to avoid an official response to the creditors' ultimatum that "the intention to acquire Asiana Airlines must be clearly expressed by the end of June to extend the contract."

However, even if negotiations take place, the final acquisition of Asiana Airlines by Hyundai Development remains uncertain. Although Hyundai Development reaffirmed its acquisition intention on this day, it presented conditions that are by no means easy.

Hyundai Development stated that it intends to reconsider the acquisition conditions from scratch due to the difficulty in estimating losses caused by the COVID-19 pandemic.

Hyundai Development decided to acquire Asiana Airlines for a total of 2.5 trillion KRW by purchasing 30.77% of Asiana Airlines shares held by Kumho Industrial for 322.8 billion KRW last year and conducting a paid-in capital increase of about 2.1771 trillion KRW. The stock purchase and capital increase have been postponed since the COVID-19 outbreak, despite only the deposit being paid at the time of the contract.

The reasons Hyundai Development cited for requesting changes to the contract terms can be summarized into three main points. First, the force majeure situation caused by the prolonged COVID-19 pandemic has drastically reduced the value of Asiana Airlines. Compared to the time of contract signing, Asiana Airlines recognized an additional 2.8 trillion KRW in debt as of the end of 2019, and with an additional 1.7 trillion KRW borrowing, the debt increased by a staggering 4.5 trillion KRW.

Hyundai Development claims that the debt ratio surged by 16,126% as of the end of Q1 2020 compared to the contract standard of the end of H1 2019. The net loss for the period also expanded by more than 800 billion KRW when combining the increased losses reported at the end of December 2019 and Q1 2020.

Hyundai Development also raised concerns about the reliability of Asiana Airlines' financial statements, which were the basis for calculating the acquisition price. Additionally, Hyundai Development cited Asiana's decision to proceed with large-scale additional borrowing and financial support for insolvent affiliates without the consortium's consent as grounds for requesting changes to the contract terms.

While Hyundai Development clearly stated its intention to acquire Asiana Airlines remains, it pressured the creditors by implying that it might abandon the acquisition if a drastic change to the existing contract terms is not made.

Some even speculate that Hyundai Development's demand for contract changes is essentially a pretext for backing out of the acquisition.

An industry insider said, "Recently, there has been a lot of negative sentiment within Hyundai Development that acquiring Asiana Airlines as planned could threaten the survival of the parent company," adding, "They might propose drastic contract changes that the creditors cannot accept and then withdraw from the acquisition."

A financial sector official also said, "The creditors are reportedly preparing for even the worst-case scenario," adding, "Renegotiations will not be easy." The Industrial Bank has also withheld its response to Hyundai Development's statement.

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