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Wednesday 4th August 2021 03:03 PM

Cash-Strapped Korean Air Mulls Rights Offering of Up To $810 Mn


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South Korea’s largest carrier Korean Air Lines Co. is mulling a rights offering of up to 1 trillion won ($810.2 million) as it rapidly runs out of cash with its international fleet mostly grounded by the coronavirus pandemic.

The airliner is discussing with NH Investment & Securities, Korea Investment & Securities and Samsung Securities to form an underwriting syndicate, according to investment bank sources on Monday.

The syndicate would be responsible for assuming and selling forfeited shares if existing shareholders refuse to take up the additional shares. The plan is to raise 500 billion won to 1 trillion won.

Korean Air’s biggest shareholder is the holding company Hanjin KAL Corp. with a 29.96 percent stake. When counting in Hanjin Group Chairman Cho Won-tae and related individuals’ shares, the insiders hold a combined 33.34 percent.

An offering of 1 trillion won would be well over half of the company’s current market cap of 1.76 trillion won.

Korean Air said “nothing has been finalized” and that it is “reviewing various options including new issues to secure liquidity.”

Shares of Korean Air dropped 2.05 percent to close Tuesday at 19,150 won.


The recapitalization move was widely expected. As with other airlines, Korean Air has been forced to suspend most of its international flights, which make up 94 percent of its passenger revenue, as the COVID-19 outbreak halted global travel. Its international routes, which had numbered more than 100 in late 2019, were now trimmed to 14. Weekly flights had also plummeted to 50 from 900.

To make up for lost sales, the carrier has been selling off non-core assets, furloughing workers and slashing pay. More than 70 percent of its workers were placed on rotational leave for up to six months. Executives have returned 30-50 percent of their salaries.

Korean Air had 1.6 trillion won in cash as of late 2019, but its reserves are already running dry. Fixed costs of 500 billion to 600 billion won go out every month on fleet lease fees. Last month, it issued 620 billion won worth of securities backed by future airline revenue but this too would be depleted this month on maturing debt obligations. In the first half alone, it has 1.2 trillion won of debt that must be repaid. Debt due by the end of this year is estimated to reach 4 trillion won.

Analysts project Korean Air’s revenue in the first quarter to have halved on year to 900 billion won. It is also expected to have swung to a loss of 200 billion won. Its earnings outlook in the second quarter is even grimmer, with an estimated operating loss of 300 billion won on sales of 420 billion won.

The government is set to announce this week a relief package of approximately 20 trillion won for aviation and other hard-hit industries.


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Posted on : Wednesday 4th August 2021 03:03 PM

Cash-Strapped Korean Air Mulls Rights Offering of Up To $810 Mn


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Posted by  Tronserve admin
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South Korea’s largest carrier Korean Air Lines Co. is mulling a rights offering of up to 1 trillion won ($810.2 million) as it rapidly runs out of cash with its international fleet mostly grounded by the coronavirus pandemic.

The airliner is discussing with NH Investment & Securities, Korea Investment & Securities and Samsung Securities to form an underwriting syndicate, according to investment bank sources on Monday.

The syndicate would be responsible for assuming and selling forfeited shares if existing shareholders refuse to take up the additional shares. The plan is to raise 500 billion won to 1 trillion won.

Korean Air’s biggest shareholder is the holding company Hanjin KAL Corp. with a 29.96 percent stake. When counting in Hanjin Group Chairman Cho Won-tae and related individuals’ shares, the insiders hold a combined 33.34 percent.

An offering of 1 trillion won would be well over half of the company’s current market cap of 1.76 trillion won.

Korean Air said “nothing has been finalized” and that it is “reviewing various options including new issues to secure liquidity.”

Shares of Korean Air dropped 2.05 percent to close Tuesday at 19,150 won.


The recapitalization move was widely expected. As with other airlines, Korean Air has been forced to suspend most of its international flights, which make up 94 percent of its passenger revenue, as the COVID-19 outbreak halted global travel. Its international routes, which had numbered more than 100 in late 2019, were now trimmed to 14. Weekly flights had also plummeted to 50 from 900.

To make up for lost sales, the carrier has been selling off non-core assets, furloughing workers and slashing pay. More than 70 percent of its workers were placed on rotational leave for up to six months. Executives have returned 30-50 percent of their salaries.

Korean Air had 1.6 trillion won in cash as of late 2019, but its reserves are already running dry. Fixed costs of 500 billion to 600 billion won go out every month on fleet lease fees. Last month, it issued 620 billion won worth of securities backed by future airline revenue but this too would be depleted this month on maturing debt obligations. In the first half alone, it has 1.2 trillion won of debt that must be repaid. Debt due by the end of this year is estimated to reach 4 trillion won.

Analysts project Korean Air’s revenue in the first quarter to have halved on year to 900 billion won. It is also expected to have swung to a loss of 200 billion won. Its earnings outlook in the second quarter is even grimmer, with an estimated operating loss of 300 billion won on sales of 420 billion won.

The government is set to announce this week a relief package of approximately 20 trillion won for aviation and other hard-hit industries.


PULSE


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korean air underwriting syndicate