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THE INVESTOR
August 18, 2019
Big Reunion

Industrials

Asiana Airlines credit placed on negative watch despite relief package

  • PUBLISHED :April 24, 2019 - 14:46
  • UPDATED :April 24, 2019 - 14:59
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Asiana Airlines, South Korea’s distressed No. 2 carrier, was placed on a watchlist for a possible downgrade by a Korean credit rating agency on April 23, despite its creditors’ plan to extend a 1.6 trillion won ($1.4 billion) relief package the same day.


Related:
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Seoul-based credit rating agency NICE Investors Service put the company on a watchlist for possible further downgrades of senior nonguaranteed bonds, meaning it could be marked down by a notch from its current rating of BBB- and lose its investment-grade status.

It cited worsening investor confidence, constraints preventing additional fundraising, the possibility of a spinoff from Kumho Asiana Group and escalating price competition in the market amid the rise of low-cost carriers.

“There are positive signs for Asiana Airlines such as an ongoing negotiation between Asiana and creditors, as well as recent plans for the aid package, but uncertainties remain with regards to the result of the negotiation, the aftermath of creditor-led additional funding and obstacles in its possible merger or acquisition,” wrote Lee Kang-seo, a credit analyst at NICE Investors Service.

Once the bonds lose an investment-grade status, Asiana Airlines is obliged to repay loans worth 1.13 trillion won to investors into asset-backed securities that collateralize receivables of the company.

Lee added that unfavorable circumstances surrounding the company could trigger an immediate credit downgrading.

Pressure from spending on cabins, weakening local currency and rising crude prices could dampen indicators in Asiana’s financial statements, he wrote, while the company’s EBITDAR-to-revenue ratio could dip below 15 percent or its quarterly adjusted leverage ratio might top 75 percent.

Another ratings agency, Korea Investors Service, maintained Asiana Airlines on its watchlist as of April 23. In March, KIS placed the firm on the watchlist for a ratings cut from BBB- for senior nonguaranteed bonds.

KIS credit analyst Park So-young cited a need for closer monitoring, despite “lowering risk for a liquidity crisis and materializing rescue plans by creditors.”

This came after the creditors led by the policy lender, the Korea Development Bank, agreed on April 23 to extend an aid package to Asiana Airlines. The package involves a new issuance of 500 billion won in perpetual bonds -- fixed-income securities without a maturity date -- to improve its balance sheet and ward off a liquidity crisis, KDB said. Moreover, creditors will extend a 300 billion won standby letter of credit and an 800 billion won credit line to normalize business.

“(Asiana Airlines) maintained decent operations and submitted a trustworthy self-rescue plan including an agreement to (pursue a) merger and acquisition,” said Hong Nam-ki, who doubles as deputy prime minister and finance minister, in a ministerial meeting April 23.

The plan came a week after Kumho Industrial, a midtier holding company of Kumho Asiana Group, agreed to place its 33.5 percent stake in Asiana Airlines and its subsidiaries up for sale April 15.

The 33.5 percent stake in Asiana Airlines was given to creditors as collateral. Also collateralized are a 4.8 percent stake in the group’s holding firm, Kumho & Company, owned by ex-Chairman Park Sam-koo’s wife and daughter, and 42.7 percent of Kumho & Company shares held by Park and his son, head of Asiana IDT Park Se-chang, once creditors of another financially pinched ex-Kumho Asiana Group unit, Kumho Tire, return them.

If the Asiana Airlines stake selloff ends in failure, creditors will claim rights to sell the stakes and proprietary rights to its trademark.

Asiana Airlines owes 3.4 trillion won to policy banks and financial institutions. The amount due within a year stands at some 1.3 trillion won.

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

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