KCGI Reviews Public Opinion Battle and Legal Response... Mega Carrier Facing Mountain

KCGI "Jo Won-tae and All Others Are Victims" Considering Legal Battles and Extraordinary General Meeting Following Public Opinion War

[Image source=Yonhap News]

[Asia Economy Reporter Yu Je-hoon] Although the integration of Korean Air and Asiana Airlines has officially begun, there are still many obstacles before the creation of a so-called 'mega carrier' ranked seventh in the world. In particular, the shareholder coalition (the three-party alliance) aiming to normalize the Hanjin Group, which is engaged in a management rights dispute with Chairman Cho Won-tae of the Hanjin Group, has announced a showdown, marking a phase where they must overcome the difficult mountain of legal battles.

According to industry sources on the 17th, the three-party alliance is continuing discussions with KDB Industrial Bank and the Hanjin Group regarding various countermeasures such as lawsuits related to the acquisition and integration of Korean Air and Asiana Airlines. This is because KDB Industrial Bank decided to support with 800 billion KRW by participating in a third-party allotment capital increase of Hanjin KAL, putting the previously solidified shareholding structure at risk of losing its advantage all at once.

Shinhan Investment Corp. also stated in a report on the same day, "KDB Industrial Bank has secured about 10.7% of Hanjin KAL shares, and Chairman Cho's side has effectively gained the upper hand in the management rights dispute," adding, "If the premium from the end of the management rights dispute is removed, a sharp adjustment in the stock price cannot be ruled out."

The legal measures currently under review by KCGI include a provisional injunction to prohibit the issuance of new shares against Hanjin KAL and a main lawsuit. Under the current Commercial Act, the conditions for a third-party allotment capital increase are limited to cases "necessary to achieve business purposes such as the introduction of new technology or improvement of financial structure," so KCGI is seen to have a chance of winning. Additionally, to block the issuance of new shares, a lawsuit must be filed within six months.

It is also known that convening an extraordinary general meeting of shareholders is under consideration. The three-party alliance has hesitated to hold an extraordinary general meeting due to the worsening management environment of the Hanjin Group caused by the COVID-19 pandemic. Although they cannot proceed with dismissing directors with their current shares alone, they plan to continue the management rights dispute by appointing a large number of their own directors and auditors based on their current shareholding advantage.

KCGI is also attempting a public opinion campaign. Being on the defensive in the management rights dispute, they have highlighted that this deal could be used as a means for Chairman Cho to defend his management rights. KCGI pointed out, "The acquisition of Asiana Airlines announced by the Hanjin Group and KDB Industrial Bank is essentially Chairman Cho's defense of management rights using the people's tax money, and everyone except Chairman Cho is a victim." They added, "In particular, the 6% stake that Chairman Cho provides as collateral to KDB Industrial Bank has already been pledged to other financial institutions, rendering it ineffective," and criticized, "KDB Industrial Bank is deceiving the public by turning a blind eye to justify the reckless prepayment of funds for Chairman Cho's defense of management rights."

Within the industry, there is also an assessment that the cards the three-party alliance can play may not significantly affect this merger and acquisition (M&A). This is because it is not a simple M&A but one aimed at industrial restructuring, and even if an extraordinary general meeting is held, it would take considerable time. Lee Sang-heon, a researcher at Hi Investment & Securities, said, "The three-party alliance can file a lawsuit to prohibit the issuance of new shares, but KDB Industrial Bank and the Hanjin Group have likely already reviewed this thoroughly, and since the purpose of restructuring the aviation industry is clear, it is uncertain whether the court will accept the three-party alliance's claims." He added, "Regarding the extraordinary general meeting, if the board refuses, separate litigation procedures must be followed, which is time-consuming, and even if some directors and auditors are appointed, it will be insufficient to continue the management rights dispute."

The ongoing legal lawsuit between Asiana Airlines and HDC Hyundai Development Company is also a point of interest. Previously, after the sale process between Asiana Airlines and Kumho Industrial with HDC Hyundai Development Company fell through, they filed a lawsuit requesting permission to use the 217.7 billion KRW contract deposit, which was set as collateral. In response, HDC Hyundai Development Company sent a letter requesting that subsidiaries such as Kumho Resort not be sold without consent, clarifying that they are not responsible for contract termination. Although this lawsuit will not directly affect Korean Air's acquisition of Asiana Airlines, the amount is significant given that the combined debt of both companies exceeds 30 trillion KRW, making it a noteworthy factor. An industry insider predicted, "Considering the possibility of a material adverse change (MAC) due to the COVID-19 situation and the precedent set by the creditors (Daewoo Shipbuilding & Marine Engineering), the dispute is expected to be intense."

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