San: "If management performance is inadequate, Cho Won-tae's pledged shares will be disposed of and he will step down from frontline management"

[Asia Economy Reporter Kangwook Cho] On the 19th, the Korea Development Bank (KDB) announced that if the management performance after the integration of Korean Air and Asiana Airlines is unsatisfactory, Chairman Cho Won-tae will not only be forced to dispose of the shares he provided as collateral but also be removed from the front line of management.

At an online briefing held that day, KDB Vice President Choi Dae-hyun said, "There have been concerns that the affiliate shareholder received the status of a single national airline without any contribution and strengthened management rights. Chairman Cho provided all of his Hanjin KAL shares as collateral for the fulfillment of this contract. KDB has imposed heavy responsibilities and obligations, including disposing of the collateral shares and removing him from management if the integration promotion and management performance are inadequate, based on management evaluation."

The market value of the 6% stake that Chairman Cho provides as collateral to KDB is approximately 273 billion KRW, and considering the debt amount already provided as collateral, the actual collateral value is estimated to be about 170 billion KRW. To guarantee the penalty of 500 billion KRW and compensation for damages, KDB acquired all Hanjin KAL shares held by Chairman Cho, the affiliate shareholder, and 730 billion KRW worth of new Korean Air shares to be acquired by Hanjin KAL in the future as collateral. In particular, KDB secured the authority to dispose of these shares at its discretion if necessary.

Vice President Choi explained, "Some are concerned that if the affiliate shareholder violates the investment agreement, Hanjin KAL will bear the responsibility. This is not true. Hanjin KAL bears no responsibility for penalties or damages caused solely by the affiliate shareholder's violation. On the contrary, if Hanjin KAL violates the agreement, the affiliate shareholder also bears responsibility and is removed from the front line of management."

Regarding the exercise of voting rights, he said that voting rights, including the recommendation of outside directors, will be exercised through a voting body involving private members.

Vice President Choi stated, "We will actively express opinions on matters related to the upcoming integration work and sound management monitoring, but for general management issues, we will maximize the autonomous and professional decision-making and management activities of the Hanjin Group and its management."

Regarding the reason for financial support through Hanjin KAL instead of Korean Air, he explained, "If Korean Air conducts a 2.5 trillion KRW rights offering and KDB participates instead of Hanjin KAL, Hanjin KAL's stake in Korean Air would fall below 20%, violating the holding company requirements. This would result in fines and orders to resolve the violation from the Fair Trade Commission. The resolution can only be achieved by disposing of Korean Air shares to prevent it from becoming a subsidiary, which would effectively collapse the holding company system."

He added, "If 800 billion KRW is injected into Hanjin KAL only through bonds such as exchangeable bonds, KDB would become a creditor. As a creditor, it would be limited in its role as a sound management monitor."

Regarding the common shares of Hanjin KAL acquired by KDB, he said, "We are not considering short-term recovery plans. Once the COVID-19 crisis ends and business conditions recover, we plan to negotiate for sale or repurchase as treasury stock."

Vice President Choi also mentioned, "(The 30.8% stake in Asiana Airlines held by Kumho Industrial) is not part of this transaction. That stake will be sold in the market after the integration work is completed and used to recover the debts of the Asiana Airlines creditors."

Regarding the third-party allotment rights offering of Hanjin KAL, not a rights offering to shareholders, he explained, "A rights offering to shareholders takes more than two months, so it cannot meet urgent funding needs."

Regarding the 'third-party alliance' (former Korean Air Vice President Cho Hyun-ah, private equity fund KCGI, and Bando Construction) filing an injunction to prohibit the issuance of new shares in opposition to KDB's resolution on the third-party allotment rights offering of Hanjin KAL, Vice President Choi said, "We have reviewed the lawsuit and the likelihood of injunction approval through multiple law firms. However, if the court grants the injunction, this transaction will inevitably fail, and in that case, we will promptly prepare alternative plans and continue to proceed."

He added, "Currently, Asiana Airlines is receiving external consulting, and if the sale fails, it will enter management by the creditors as originally planned."

Regarding the Korea Development Fund's support for Korean Air, Vice President Choi said, "It is currently under review, and discussions on the amount to be invested are ongoing."

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