Hanjin Kal and KDB Sign Investment Agreement... Establishing Ethical Management Safeguards (Comprehensive)

Korean Air and Asiana Airlines aircraft are parked at the apron of Incheon International Airport.
[Image source=Yonhap News]

[Asia Economy Reporter Seongpil Cho] Hanjin KAL, the holding company of Korean Air, signed an investment agreement with the Korea Development Bank (KDB) on the 17th, officially commencing the acquisition process of Asiana Airlines. Considering the public outrage over the repeated 'gapjil' (abuse of power) by the Hanjin family, KDB codified 'safeguards' for ethical management in the investment agreement.

On the same day, Hanjin KAL signed an investment agreement with KDB to raise a total of 800 billion KRW through a new share subscription contract and exchangeable bond subscription contract. The agreement specified seven mandatory obligations that Hanjin KAL must observe. It is also reported that the agreement includes provisions allowing for the replacement of management if any 'gapjil' by the Hanjin family occurs.

The mandatory obligations include the responsibility to establish and operate an Ethics Management Committee and to cooperate with and supervise the Management Evaluation Committee in conducting management evaluations of Korean Air. The committee will be established to ensure ethical management by the executives of Hanjin KAL and its major affiliates. Members of the Hanjin family, such as Executive Director Cho Hyun-min of Hanjin KAL and Advisor Lee Myung-hee of Jungseok Enterprise, will not participate in the management of airline-related affiliates. According to the agreement, if 'gapjil' by owners like Chairman Cho Won-tae of Hanjin KAL occurs, KDB can take strong measures such as replacing management through the Ethics Management Committee. Plans also include replacing or dismissing management if performance is unsatisfactory.

The agreement also includes mandatory provisions such as the appointment of three outside directors and audit committee members designated by KDB, as well as prior consultation and consent rights on major management matters. The purpose of these obligations is for KDB, which will hold a 10.66% stake in Hanjin KAL, to monitor and check Hanjin KAL's management. Currently, Hanjin KAL's board consists of three inside directors?Chairman Cho Won-tae, President Seok Tae-soo, and Vice President Ha Eun-yong?and eight outside directors.

KDB also assigned Hanjin KAL the responsibility to establish and implement an integration plan (PMI) after acquiring Asiana Airlines. The agreement includes provisions preventing Hanjin KAL from disposing of Korean Air shares pledged as collateral to KDB. Violations of key clauses in the investment agreement will result in penalties of 50 billion KRW and liability for damages.

The acquisition process of Asiana Airlines by Korean Air, initiated by this investment agreement, is expected to conclude around June next year. Once Korean Air acquires the new shares of Asiana Airlines, it will become the largest shareholder. The current largest shareholder, Kumho Industrial, is expected to see its stake fall below 20%. The governance structure will be Hanjin KAL → Korean Air → Asiana Airlines. Korean Air plans to operate Asiana Airlines as a subsidiary initially and then absorb it within one to two years.

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