San: The Last Card 'Asiana' Received by HDC Hyundai Development Company... What Will They Choose?

Not a Price Reduction but Financial Support... High Possibility of Rejection
Concerns Over Asiana Acquisition Collapse if Existing Position is Insisted Upon

[Asia Economy reporters Inho Yoo and Kangwook Cho] Chung Mong-gyu, chairman of HDC Hyundai Development Company, stands at a crossroads regarding the acquisition of Asiana Airlines. It is analyzed that the ball has ultimately been passed to Chairman Chung's side after Lee Dong-geol, chairman of the Korea Development Bank (KDB), a creditor of Asiana Airlines, reportedly proposed a plan to ease HDC Hyundai Development Company's financial burden for the acquisition during a meeting with Chairman Chung the day before. Industry insiders predict that since KDB's proposal is essentially a final ultimatum, if Chairman Chung insists on his previous stance of re-due diligence, HDC Hyundai Development Company's acquisition of Asiana Airlines will likely fall through.

According to KDB on the 27th, Chairman Lee met with Chairman Chung for about an hour at an undisclosed location in Seoul the previous afternoon to discuss major issues surrounding the acquisition of Asiana Airlines. Chairman Lee reportedly told Chairman Chung, "Let's renegotiate," and "Please tell me what you want." The renegotiation mentioned by Chairman Lee is interpreted as a call to reassess the acquisition price. However, KDB explained that Chairman Lee did not mention any specific figures during the meeting. A KDB official stated, "To smoothly conclude the Asiana Airlines M&A, we discussed all possibilities regarding acquisition conditions with Hyundai Development Company," adding, "The phrase 'all possibilities' itself means that extensive conversations took place for the deal."

Although no specific terms were presented at the discussion table, the mention of negotiating 'all' conditions with HDC Hyundai Development Company implies that the creditors may change the existing acquisition terms. The stock purchase agreement (SPA) signed between Hyundai Development Company and Kumho Industrial on December 17 last year stipulated that Hyundai Development Company would purchase 30.77% of Kumho Industrial's Asiana Airlines shares for 322.9 billion KRW and then inject new funds through a paid-in capital increase worth 2.1771 trillion KRW. However, with the spread of the novel coronavirus (COVID-19) severely worsening the aviation industry, reviewing the SPA terms at this point means Asiana Airlines was overvalued.

In the market, rumors have circulated that KDB proposed a joint investment plan that would reduce the acquisition price of Asiana Airlines by up to about 1 trillion KRW. The likely plan involves the creditors and Hyundai Development Company each investing up to 1.5 trillion KRW, totaling 3 trillion KRW to restore Asiana's management. This plan would add an additional 700 billion KRW to the 800 billion KRW already supported through perpetual bonds, increasing capital by approximately 1.5 trillion KRW. There is also talk of not converting the 800 billion KRW in perpetual bonds into equity. This is interpreted as accepting Hyundai Development Company's argument that the acquisition price should be adjusted due to the changed business environment caused by the COVID-19 pandemic.

Chairman Lee's joint investment proposal is ultimately understood to mean that HDC Hyundai Development Company could acquire Asiana Airlines for about 1.5 trillion KRW, roughly 1 trillion KRW less than the original contract amount of 2.5 trillion KRW.

Now, Chairman Chung must make a decision. Given HDC Hyundai Development Company's past stance, it is highly likely they will ignore KDB's renegotiation card and request a 12-week re-due diligence period. Moreover, since KDB's joint investment proposal does not actually lower the acquisition price of Asiana Airlines, the possibility of HDC Hyundai Development Company accepting it is low. In this case, KDB is expected to terminate the deal with HDC Hyundai Development Company and become the largest shareholder of Asiana Airlines through debt-to-equity conversion, thereby initiating full-scale restructuring.

Even if Chairman Chung proceeds with renegotiations, challenges remain. Since he still sees the need for a lengthy re-due diligence regarding the acquisition price of Asiana Airlines, there is a possibility of canceling the acquisition after the re-due diligence.

A KDB official said, "We have conveyed that we are willing to negotiate on any proposal, so we will wait for Hyundai Development Company's response," adding, "The subsequent schedule will be coordinated with the selling parties, including Kumho Industrial, based on the response."

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