Bo-eun leads the digital content team. She has covered foreign affairs, North Korea, tech, economy and gender issues at The Korea Times. She did a short stint at the South China Morning Post in Hong Kong, where she obtained a new perspective on news production and life. Small sources of joy for her are lounging in the sun, having a good latte and swimming.
Will KDB chief succeed in eliciting Asiana M&A deal?
By Kim Bo-eun
Korea Development Bank Chairman Lee Dong-gull
By Kim Bo-eun
All eyes are on whether Korea Development Bank (KDB) Chairman Lee Dong-gull will be able to prompt Hyundai Development Company (HDC) to push on with the deal to acquire Asiana Airlines.
While the KDB, which leads Asiana's creditors, did not provide details of Lee's meeting with HDC Chairman Chung Mong-kyu, Wednesday, the state-run lender stated it "held discussions, keeping all possibilities regarding acquisition conditions open."
It appears Lee has offered significant concessions in terms of reducing the cost burden for HDC to bring the company back to the table.
The consortium led by HDC had agreed to sign a stock purchase agreement on the acquisition of Asiana from Kumho Industrial, the construction unit of Kumho Asiana Group, in December. But in June, HDC requested a review of the deal be conducted from scratch after the COVID-19 pandemic greatly affected the airline industry.
HDC has called for a 12-week due diligence of Asiana to look into its financial condition, as circumstances have worsened from eight months earlier. Kumho and the KDB refused the request, instead offering to make concessions on acquisition conditions.
Hyundai Development Company (HDC) Chairman Chung Mong-kyu
The differences had kept the deal on hold for months and posed increasing uncertainty over its closure. Lee and Chung met twice before Wednesday's meeting, but were unable to narrow their differences.
This appears to have prompted Lee to offer greater incentives for HDC to go through with the deal. In his third meeting with Chung, Lee is reported to have said other creditors to invest in Asiana to reduce the cost burden to HDC.
The reported plan is for creditors and HDC to each pour in 1.5 trillion won ― a total of 3 trillion won ― to normalize Asiana's operations. Creditors already hold 800 billion won in perpetual bonds of Asiana.
Under the original deal, HDC was supposed to acquire Asiana by taking over 30.77 percent of Asiana shares owned by Kumho for 322.8 billion won and raising 2.18 trillion won in additional capital, bringing the acquisition price to 2.5 trillion won.
Under the new plan, HDC would be able to acquire Asiana for 1 trillion won less than the original price.
Lee has been determined to settle the deal.
Despite the differences that caused a months-long stall, HDC is seen to have returned to the negotiating table after Asiana posted an earnings surprise in the second quarter ― its first surplus in six quarters, with operating income at 115.1 billion won, despite the COVID-19 pandemic. This was based on its focus on freight.
The ball is now in HDC's court. The KDB will pressure the firm to reach a conclusion, as it seeks progress on the deal before Lee's term ends on Sept. 10. Views are, however, that Lee will serve another term.
"We will wait for HDC's response and, based on its response, we will hold talks with Kumho Industrial," the KDB said.
If HDC does not accept the KDB's offer discussed at Wednesday's meeting, the deal will fall through. Industry sources have referred to it as the final top-level meeting between HDC and the KDB.
It appears possible that HDC will decline the offer from creditors.
HDC is seen to be considering the airline industry's prospects amid the COVID-19 pandemic. Based on current circumstances, it may forgo the acquisition even if creditors offer to lower the price. Asiana's debt has grown by 2.8 trillion won since December.
The request for a second 12-week due diligence on Asiana is also seen as a means to “buy” time to see how the COVID-19 situation develops.
If the deal falls through, creditors plan to use part of the 40 trillion won government relief package for key industries to keep Asiana afloat. In this case, creditors will likely not put Asiana on the market for the time being.