Debt Ratio at 855% for T'way, Capital Increase Again This Year

Raised 119 Billion KRW to Improve Financial Structure
Mainly Used for Lease and Maintenance Fees
Concerns Over Dilution of Major Shareholder's Stake

[Asia Economy Reporter Yoo Hyun-seok] T'way Air will conduct a paid-in capital increase for the third consecutive year. The company is injecting funds to improve its deteriorated financial structure after recording huge losses every year due to COVID-19. However, concerns about share dilution are emerging as the participation of the largest shareholder, T'way Holdings, remains uncertain.

According to the aviation industry on the 25th, T'way Air will proceed with a paid-in capital increase worth 119 billion KRW through a rights offering followed by a general public offering of unsubscribed shares.

After submitting the audit report, T'way Air plans to borrow 30 billion KRW through KB Securities, the lead underwriter of the paid-in capital increase. Once the capital increase is completed, the company will use 30 billion KRW to repay this loan. Of the 98 billion KRW to be used as operating funds, 46 billion KRW will be allocated to aircraft lease and maintenance fees, 24 billion KRW to fuel costs, and 19 billion KRW to operating expenses such as ground handling fees.

The largest portion of funds will go toward aircraft lease and maintenance fees. This is because lease fees exceeding 80 billion KRW must be repaid within one year. Looking at T'way Air's aircraft lease payment schedule as of the end of the third quarter last year, current lease liabilities amount to 81.1 billion KRW, 79.1 billion KRW within 1-2 years, 65.5 billion KRW within 2-3 years, and 88.7 billion KRW beyond 3 years, totaling 314.4 billion KRW.

The main reason for conducting the paid-in capital increase is to expand capital and improve the financial structure. T'way Air's performance and financial stability have deteriorated due to COVID-19 and other factors. As of the third quarter last year, the company recorded sales of 145.1 billion KRW and an operating loss of 119.2 billion KRW. Securities firms projected last year's sales and operating loss at 206 billion KRW and 157 billion KRW, respectively.

The debt ratio, which was only 90.9% in 2018, surged to 503.3% in 2020 due to the outbreak of COVID-19. By the third quarter last year, it soared to 855.8%. The net debt dependency also increased from 20.5% in 2019 to 37.7% in the third quarter last year. Additionally, the current ratio, an indicator used to assess the company's ability to pay debts, dropped from 99.2% in 2019 to 48.7%. The interest coverage ratio has also worsened. The interest coverage ratio is the value obtained by dividing operating profit by interest expenses. A ratio below 1 means the company cannot even cover its interest expenses. It was -5.9 times in 2020 and recorded -6.0 times in the third quarter last year.

Due to continued poor performance, some capital erosion appears to have occurred. Capital erosion refers to a situation where total capital continuously decreases to less than the capital stock. T'way Air's total capital was 117 billion KRW in 2020 but sharply dropped to 75.5 billion KRW by the third quarter last year. The capital stock is 71.1 billion KRW.

There are also concerns about dilution of the largest shareholder's stake. The largest shareholder of T'way Air is T'way Holdings, holding 40.92% of the shares. If T'way Holdings does not participate in the paid-in capital increase, its stake will fall to 30.27%. The company stated, "The largest shareholder, T'way Holdings, has insufficient funds, and the decision on whether to subscribe to the allocated shares has not been made as of the submission date of the disclosure documents. If funds for subscription are not secured contrary to plans, there is a possibility that the largest shareholder may not participate in the subscription."

Meanwhile, if this paid-in capital increase is carried out, T'way Air will have raised funds through the capital market for three consecutive years. In 2020, it conducted a paid-in capital increase worth 66.8 billion KRW, and last year, 80 billion KRW.

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