Asiana Airlines 'No Deal' Expected to Trigger 2 Trillion Won Injection from Kian Fund

Sale Likelihood Diminishes
Management Plans by Creditors Including KDB
Government Stake Jumps to 60%

[Asia Economy Reporter Kangwook Cho] As the possibility of Asiana Airlines' sale falling through increases, there is a growing expectation that the airline will eventually undergo 'nationalization.' In particular, it is widely anticipated that at least 2 trillion won from the Industrial Infrastructure Fund will be injected into Asiana Airlines, which has become impossible to survive independently. In this case, the government's stake in Asiana Airlines is expected to approach 60%.

According to financial circles on the 30th, the 'Plan B' being prepared by creditors such as the Korea Development Bank and the Export-Import Bank, in response to the potential failure of Asiana Airlines' sale, includes a measure to place Asiana Airlines under creditor management. This process is similar to that of Daewoo Shipbuilding & Marine Engineering, which is currently managed by the Korea Development Bank, where the company is first incorporated as an affiliate, undergoes restructuring to shed non-performing assets, and then is resold. In this case, the Korea Development Bank is likely to become the parent company of Asiana Airlines, the country's second-largest national airline, for the time being.

Already, the Korea Development Bank and the Export-Import Bank provided a total of 1.6 trillion won in support to Asiana in April last year. This included the acquisition of 500 billion won worth of perpetual bonds issued by Asiana. Additionally, separate from the 1.7 trillion won provided in April this year, they also acquired 300 billion won in perpetual bonds. These bonds are convertible into shares, and the Korea Development Bank and the Export-Import Bank disclosed earlier this month that they hold 93,991,174 shares and 37,051,827 shares of Asiana Airlines convertible bonds (CB), respectively. Upon conversion to stock, they would secure 26.53% and 10.46% ownership stakes, respectively. The total holding of 36.9% surpasses Kumho Industrial's 30.7%, the current major shareholder of Asiana.

Moreover, if the Industrial Infrastructure Fund is injected to normalize management in the event of a failed sale, the government's shareholding ratio will increase further. Asiana Airlines posted a net loss of 683.4 billion won in the first quarter of this year, and its debt ratio sharply deteriorated from 1,387% at the end of last year to 6,280% at the end of March this year. It is estimated that Asiana Airlines has about 2.5 trillion won in borrowings to repay this year. Therefore, if the sale fails, an injection of at least 2 trillion won from the fund will be necessary.

If 2 trillion won from the Industrial Infrastructure Fund is injected, the government will acquire about 400 billion won worth of shares in Asiana Airlines, which is approximately 20% of the fund. The fund's support includes a condition that allows equity participation (such as convertible bonds or bonds with warrants) within 20% of the financial support amount. In this case, arithmetically, the government's stake would jump to about 60%. The Korea Development Bank previously set the stake at 30% when converting 500 billion won of perpetual bonds into equity in April.

Financial Services Commission Chairman Eun Sung-soo also hinted at the possibility of nationalization and fund injection during his appearance at the National Assembly's Political Affairs Committee plenary session yesterday. Chairman Eun said, "I understand that the possibility of the deal not going through with Asiana Airlines and the creditors is being considered," adding, "If the deal fails and Asiana Airlines applies for support from the Industrial Infrastructure Fund, it meets the eligibility criteria."

Meanwhile, Kumho Industrial has maintained its position that the preconditions for closing the deal have been met and is reported to have sent a letter to HDC Hyundai Development Company stating that the contract can be terminated after August 12.

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