"Irresponsible Speculators" vs. "Special Privileges Only for KDB and Hanjin" Fierce Public Opinion Battle

Korean Air-Asiana M&A First Hurdle: Uncertain Outcome Ahead of Injunction Ruling

[Image source=Yonhap News]

[Asia Economy Reporter Yu Je-hoon] As the court ruling on the private equity fund KCGI's injunction request to prohibit new share issuance, the first hurdle in Korean Air's acquisition of Asiana Airlines, approaches, the public relations battle between both sides is intensifying. The court's decision, expected by early next week at the latest, will determine whether this deal proceeds smoothly or collapses. While KCGI is aggressively criticizing the deal as "rescuing Chairman Cho Won-tae," KDB Industrial Bank and the Hanjin Group emphasize that it is a measure to prevent a second Hanjin Shipping crisis and a decision aimed at restructuring a national key industry.

The most controversial issue regarding this acquisition is the third-party allotment rights issue conducted amid the management rights dispute. KCGI defines the deal structure, in which KDB injects 800 billion KRW into Hanjin KAL through third-party allotment rights and other means to support Korean Air's acquisition of Asiana Airlines, as a 'special favor' to Cho Won-tae, chairman of the Hanjin Group. In particular, they argue that third-party allotment rights during a management rights dispute contradict existing Commercial Act provisions and Supreme Court precedents.

On the day, KCGI stated, "If KDB and the Hanjin Group sincerely wish to restructure the aviation industry, even if the injunction is granted, it is possible to proceed through various methods such as loans, issuance of non-voting preferred shares, asset sales, or rights offerings to existing shareholders," adding, "They are simply ignoring possible alternatives with various excuses."

On the other hand, KDB Industrial Bank refutes that this decision is far from saving Chairman Cho. They explain that since this is not a simple merger and acquisition (M&A) but an integration of the first and second largest companies and low-cost carriers (LCCs) as part of national key industry restructuring, securing control over the holding company Hanjin KAL was important. They also considered that the rights offering to existing shareholders, suggested by KCGI as an alternative, would take 2 to 3 months and thus could not cover the urgent funding needs.

The Hanjin Group also argues that the third-party allotment rights issue is lawful due to 'business necessity.' Citing Articles 418 of the current Commercial Act and 165 of the Fair Trade Act, the group stated, "It is a lawful procedure based on the necessity to achieve business objectives such as introducing new technologies and improving financial structure," and added, "The Supreme Court has also ruled that even in a management rights dispute, third-party allotment rights within the scope defined by the articles of incorporation are lawful." KDB and the Hanjin Group further explain that this third-party allotment rights issue is the best way for Hanjin KAL to maintain its 20% holding ratio in Korean Air, a subsidiary under the Fair Trade Act.

The two sides also differ on the limitations of private equity funds, whose goal is inevitably profit realization. The Hanjin Group criticized, "There is no room for a private equity fund, whose purpose is the private gain of minority investors, to interfere in an important decision involving the survival of the national key aviation industry and the jobs of over 100,000 people," adding, "KCGI's injunction request is extremely irresponsible, as it made no sacrifices or efforts to share pain when the company was on the brink of collapse due to COVID-19 and failed to propose alternatives for the survival of the aviation industry."

Industry insiders have consistently pointed out that although KCGI invested under the pretext of restructuring Hanjin Group's governance, KCGI's structure contradicts this. Among KCGI's major investors, Chosun Refractories was ranked C in the Korean Corporate Governance Service (KCGS) governance evaluation (down from D last year), and Bando Construction, part of the third-party coalition, maintains a family-centered management system. These factors are analyzed as the background of contradictory actions. In response, KCGI said, "Signing an acquisition contract worth 1.8 trillion KRW for Asiana Airlines without due diligence and executing funds within just 10 days solely for the benefit of KDB and Chairman Cho is a speculative capital act that sacrifices everyone."

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