Asiana Airlines to Proceed with 3:1 Equal Free Capital Reduction

Inevitable Backlash from Second-Largest Shareholder and Minority Shareholders

[Image source=Yonhap News]

[Asia Economy Reporter Yu Je-hoon] Asiana Airlines is planning a 3-for-1 equal capital reduction without compensation. Asiana Airlines announced on the 3rd that it is promoting a 3-for-1 capital reduction without compensation in consultation with creditor banks to cover losses caused by the novel coronavirus infection (COVID-19) and to improve its financial structure.

As of the second quarter, Asiana Airlines' capital impairment ratio stood at 56.3%. Considering the performance deterioration due to COVID-19, without capital increase or capital reduction, the possibility of being designated as a management item or a downgrade in credit rating cannot be ruled out.

Regarding this decision, Asiana Airlines explained, "Realistically, it is difficult to increase capital through existing shareholders' rights offerings, and there are limits to resolving the capital impairment issue solely with the support of creditor banks. Considering that failure to resolve the capital impairment issue within this year would adversely affect financial contracts and credit ratings, we have inevitably decided on the capital reduction."

However, in the industry, there are expectations that the method of equally reducing capital for all shareholders, including the largest shareholder Kumho Industrial (31%), may face considerable opposition from other shareholders and minority shareholders who are unrelated to management failure responsibility. It is also known that Kumho Petrochemical, the second-largest shareholder, is conducting internal discussions regarding this equal capital reduction decision.

Asiana Airlines stated in this regard, "The major shareholder's shares were provided as collateral to creditor banks simultaneously with the sale decision, and considering that since last year's sale decision the major shareholder has not been involved in company management at all, and that the merger and acquisition (M&A) deal, which was about to be finalized, was canceled due to COVID-19."

Meanwhile, Asiana Airlines plans to hold an extraordinary general meeting of shareholders at its headquarters in Osoe-dong, Gangseo-gu, Seoul, on December 14 to vote on this capital reduction without compensation proposal.

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