[Funding] Korean Air, Will It Continue Market Financing with '30 Billion Loan Securitization'?

[Asia Economy Reporter Lim Jeong-su] Korean Air has resumed market-based fundraising. After improving its financial structure through a capital increase of over 1 trillion won and the sale of its in-flight meal business division, the company has maintained a profit trend despite the COVID-19 pandemic, making some fundraising possible. However, the prevailing view is that it will be difficult to continue raising funds independently through corporate bond issuance and other means.

According to the investment banking (IB) industry on the 27th, Korean Air raised 30 billion won today under the management of Bukook Securities. The loan maturity is one year, with principal and interest repayment due in August next year. Bukook Securities executed the loan through a special purpose company (SPC), which issued short-term bonds backed by the loan principal and interest as underlying assets to secure the loan funds.

The underwriter, Bukook Securities, did not provide credit guarantees or short-term bond purchase agreements. It only acted as an intermediary, securitizing the one-year loan into three-month short-term bonds and selling them to institutional investors. There was also a condition that if no buyer appeared when the short-term bonds were refinanced every three months, the loan would be repaid early.

The IB industry is paying attention to whether Korean Air can resume market-based fundraising starting with this capital raising. Recently, the company succeeded in a capital increase worth 1.127 trillion won and improved its financial structure by issuing 300 billion won worth of 30-year perpetual convertible bonds (perpetual CBs). Perpetual CBs are recognized as liabilities in accounting, which slightly improves Korean Air’s debt ratio that has exceeded 1000%.

Korean Air also recently agreed to sell its in-flight meal and catering business divisions to the domestic private equity fund Han & Company for 990.6 billion won. Upon completion of the sale, it is expected that more than 700 billion won in cash will flow in. In addition, the company is executing its financial improvement plans step by step, including other asset sales.

Improved performance driven by the strong cargo sector is also cited as a factor enabling fundraising. Korean Air returned to profitability in the second quarter and is expected to see improved results in the second half of the year. Choi Go-woon, an analyst at Korea Investment & Securities, said, "Due to the spread of COVID-19, cargo supply has become insufficient, causing international cargo rates to rise sharply," and predicted, "Korean Air will continue its profit trend in the second half."

However, there are also opinions that full-scale fundraising such as corporate bond issuance will still be difficult. With COVID-19 resurging, the extent of performance improvement is expected to be limited. An IB industry official pointed out, "With Korean Air’s debt exceeding 24 trillion won, a capital increase of about 1 trillion won only addresses urgent liquidity needs," adding, "The financial improvement effect from the sale of the in-flight meal business division is also not significant."

The KCGI-Bando Construction-Jo Hyun-ah tripartite alliance also downgraded Korean Air’s performance improvement, stating it is not the result of management efficiency. In a statement released that day, they said, "As global passenger flights sharply declined, cargo transport via passenger planes became difficult, and Korean Air, which owns relatively many dedicated cargo planes, enjoyed a windfall," and diagnosed, "The Hanjin Group, including Korean Air, is still in a management crisis."

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