September 04, 2020 11:59
HDC Hyundai Development will after all not be buying troubled Asiana Airlines after 10 months of negotiations floundered amid the coronavirus epidemic.
Kumho Industrial, the parent company of Asiana, and Korea Development Bank, the flag carrier's main creditor, will inform the property developer that the deal has been scrapped since HDC no longer seems to have any intent to proceed with the acquisition. That means Asiana will remain in creditor management for a protracted period since the pandemic has significantly tarnished the luster of all airlines.
Industry sources on Thursday said the decision was made after KDB received an e-mail from HDC that still insists on another round of due diligence at the carrier even after the bank offered another W1.5 trillion worth of financial support (US$1=W1,189).
KDB chairman Lee Dong-gull made the offer in a meeting on Aug. 26 with HDC chairman Chung Mong-gyu and asked him to give a response within a week.
But according to a bank source the response e-mail "did not contain a specific expression of intent and was full of ambiguities." "After that kind of response to the de facto ultimatum, we had no choice" but to scrap the deal, the insider added.
HDC was picked as the preferred bidder last November and signed a share purchase agreement the following month. The acquisition price was set at W2.5 trillion. But the deal hit the rocks once coronavirus broke out and caused Asiana's debt-to-equity ratio to surge from 1,795.1 percent in late 2019 to 2,366.1 percent in the first half of this year.
The carrier managed to post a W23.4 billion operating profit in the second quarter thanks to sound cargo earnings, but first-half losses totaled W268.6 billion.
KDB and another state-owned lender, Export–Import Bank of Korea, provided W1.7 trillion in emergency loans to Asiana in April. But HDC bristled at the move because Asiana's debts increased without its authorization and demanded another due diligence in April.
In reality there was a mounting sense within HDC management that a takeover at this time would be madness. The property developer is expected to sue for the repayment of W250 billion it paid as a deposit on the deal.
Now Asiana's future is uncertain again. There is no telling when the airline industry slump will end, making it nearly impossible to find a new buyer. Industry insiders believe Asiana will become a quasi-state enterprise. KDB and Exim Bank own W800 billion worth of perpetual bonds issued by Asiana, which translates into a 36.9 percent stake in the carrier, the largest.
Kumho Industrial seems unable to restructure the airline's business on its own. Experts say the incident should serve as a wake-up call to overhaul Korea's airline industry. Huh Hee-young at Korea Aerospace University said, "Just like mergers among major carriers in the U.S. and Europe, Korean Air and Asiana should also merge in order to bolster their international competitiveness."
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