SEOUL, Apr. 15 (Korea Bizwire) — Cash-strapped Kumho Asiana Group said Monday that it will put its flagship Asiana Airlines Inc. up for sale to secure a fresh loan from creditors, sending shares in the carrier on the Seoul bourse sharply higher.
The group’s decision to sell Asiana Airlines came after creditors, led by the state-run Korea Development Bank, and the Financial Services Commission (FSC) rejected its earlier self-rescue plan, demanding more concrete and bolder action.
The creditors and the financial regulator called the plan “insufficient” to restore market trust in the debt-laden airline-to-petrochemical conglomerate.
Under the newly proposed plan, Kumho Asiana said it will sell the 33.47 percent stake held by Kumho Industrials Co. in Asiana Airlines worth about 300 billion won (US$264.6 million) in market value.
“The group said it will immediately start the process of selling Asiana Airlines. And it provided an additional 4.8 percent stake in Kumho Business to the creditors as collateral for new loans,” the KDB said in a statement.
Currently, creditors hold a 42.7 percent stake in Kumho Business, an express bus operator, as collateral for the loans that have been extended to the group, along with a 42.7 percent stake in Kumho Tire Co., it said.
In the latest self-help plan, the group also said it will scale down the airline’s fleet, suspend non-profitable routes and improve employees’ productivity, while strongly urging the creditors to extend a fresh loan worth 500 billion won.
FSC Chairman Choi Jong-ku said creditors will likely accept Kumho Asiana’s revised plan, calling it “very positive.”
“It would take several months for the group to complete the proposed sale of Asiana Airlines even if the process goes smoothly. It may change depending on market conditions,” Choi told reporters.
The KDB said it will hold a meeting with other creditors to review the proposed plans for an additional loan extension. The group owes financial institutions 3.2 trillion won in short-term obligations, with some 1.2 trillion won of loans maturing this year.
Some 60 billion won worth of corporate debts are due for repayment by the April 25 deadline.
Shares in Asiana Airlines soared by the daily limit of 30 percent to 7,280 won, their highest in more than three years, on the news. The broader KOSPI rose 0.42 percent.
The 33.47 percent stake is valued at some 500 billion won based on Monday’s closing price. The acquisition price may go higher if the management premium is taken into account. Industry sources said the price tag for Asiana Airlines may soar to some 1 trillion won.
Asiana has a number of affiliates, including budget carrier Air Busan, and whoever gets to take over the airline will acquire all the affiliates as well unless the buyer wants a change in the terms, according to officials.
The country’s major conglomerates such as SK Group, Hanwha Group, CJ Group and Aekyung Group reportedly have interest in the carrier, although they denied the media reports.
Analysts said the sale of Asiana Airlines will help improve the group’s financial health as the proceeds can be used to repay some of the group’s debt and cover financial costs, which reached over 160 billion won last year.
“In addition to the sale of Asiana Airlines, a possible rights issue and other restructuring measures will help reduce interest costs and other expenses,” KB Securities Co. analyst Kang Seong-jin said.
Kumho Asiana Chairman Park Sam-koo stepped down last month as chief executive of Asiana Airlines after the company failed to win auditors’ approval for its 2018 financial report last month. Kumho Asiana shares nosedived, though its revised statement was accepted.
His resignation came after Choi and creditors also voiced opposition to the founding family’s plan to keep its control over Asiana Airlines, the country’s second-biggest airline after Korean Air Lines Co.
In 2018, the KDB and Asiana Airlines signed a deal that required the carrier to secure liquidity through sales of non-core assets and the issuance of convertible and perpetual bonds.
Last year, Asiana Airlines swung to a net loss of 10.4 billion won from a net profit of 248 billion won a year earlier due to currency-related losses and increased jet fuel costs.