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THE INVESTOR
July 24, 2019
Big Reunion

Stocks & Bonds

Corrected audit report weighs on Asiana Airlines

  • PUBLISHED :March 29, 2019 - 15:45
  • UPDATED :March 29, 2019 - 15:56
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Debt-ridden Asiana Airlines’ corrected 2018 financial report has added to growing doubts about the Korean air carrier’s liquidity. 


Kumho-Asiana headquarters in Seoul, South Korea
Yonhap

Related:
Kumho-Asiana chairman to quit over audit uproar
Asiana Airlines faces credit downgrading, liquidity crunch


Citing data, the Korean credit rating agency Korea Investors Service said it was keeping a close watch on downward impact on Asiana Airlines’ current credit ratings for its long-term and short-term nonguaranteed bonds at BBB-.

“The current credit rating (of Asiana Airlines) should be reconsidered, based on corrections in a final version of the financial statement and their impact on the company’s fundamentals with regards to business status, ability to generate profit and revenue and financial stability,” said Park So-young, a senior credit analyst at Korea Investors Service, in a note to investors on March 28.

Park cited worsened figures, based on which Asiana Airlines’ auditor Samil PricewaterhouseCoopers expressed an “unmodified” audit opinion, meaning its financial statements are presented with the applicable framework.

According to the corrected report on March 26, Asiana Airlines’ 28.2 billion won ($24.8 million) annual operating profit turned into a 195.9 billion won loss, while some 140 billion won of liabilities were added to the previous 6.96 trillion won. Its debt-to-equity ratio rose to 649 percent from the previous 625 percent.

“The ‘unmodified’ audit opinion on the corrected financial report is not necessarily a prerequisite for removing (Asiana Airlines) from our watch list (for credit downgrading),” Park wrote.

A downgrade to BB+ would trigger an immediate 1.13 trillion won loan repayment to investors into asset-backed securities that collateralize receivables of Asiana Airlines. The company would also likely face a liquidity crunch, as investors would be spooked by uncertainties surrounding nonguaranteed securities.

Asiana Airlines, an airline arm of Kumho-Asiana Group, has relied on ABS investors for leverage, in addition to some 200 billion won of debt from debtholders led by the state-owned Korea Development Bank.

Park said a contingency plan -- involving sales of nonoperating assets and shares of its affiliates, issuance of perpetual debenture and large-scale capital increase -- is crucial to “regaining market trust” and its removal from the watch list.

Last week, KIS and another credit ratings agency, NICE Investors Service, put Asiana Airlines on respective watch lists for possible credit downgrading.

Asiana Airlines, trading on Korea’s top-tier stock market Kospi, issued a new financial statement upon a “qualified” opinion by the external auditor on March 22, causing stock trading to be temporarily suspended and bonds to be delisted. Beleaguered Kumho-Asiana Group Chairman Park Sam-koo offered to resign on March 28.

By Son Ji-hyoung (consnow@heraldcorp.com)

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