Park Jae-hyuk is a seasoned journalist who has provided comprehensive coverage of South Korea's corporate dynamics, economic policies, industry challenges and the global positioning of Korean companies. Based on the articles he has written since joining The Korea Times in 2016, his investigative approach has helped readers understand corporate governance, economic trends and business strategies shaping South Korea’s economy.
IMM faces greater dilemma over cash-strapped Hanatour
Hanatour Service's introduction on the IMM Private Equity website / Captured from IMM Private Equity website
By Park Jae-hyuk
By Park Jae-hyuk
Hanatour Service is becoming a bigger headache to its largest shareholder IMM Private Equity.
Starting next month, the nation's leading travel agency will stop paying salaries to its employees because it will no longer be eligible for the government subsidy that has been given to industries hit by the COVID-19 pandemic.
With the financial assistance, the company paid its 2,000 workers 50 percent of their wages, but the workers were recently asked to take unpaid leave until March next year. This has raised concerns over massive layoffs as has been seen in other mid-size travel agencies, such as NHN DoctorTour, JauTour and Lotte Tour Development.
IMM has already faced growing calls for downsizing at Hanatour, since the spread of the coronavirus dealt a severe blow to the tourism industry worldwide.
“Without a large-scale restructuring of the headquarters, it will be difficult for Hanatour to avoid a multiple billion won deficit,” Hyundai Motor Securities analyst Kim Hyun-yong said. “It has stably maintained its workforce, posting the worst operating loss of 51.8 billion won ($46 million) in the second quarter.”
“We do not have any plans for workforce reduction, although we have carried out restructuring by unloading Hanatour's non-core businesses, such as duty free stores and hotels,” an IMM executive said. “Hanatour will need a large number of employees when the COVID-19 pandemic ends.”
Hanatour also said the unpaid leave was a decision to ensure the company at could be maintained at minimum costs.
Considering private equity firms (PEFs) that laid off employees at their portfolio companies have received severe public criticism in Korea, IMM will face difficulties in making the decision on the restructuring of Hanatour.
If the tour industry downturn persists, however, the PEF will come under pressure from investors who have already suffered huge losses. According to industry sources, KB Kookmin Bank and KB Securities are among the investors that suffered major losses for their investments in IMM's blind-pool fund which was used to acquire stakes in Hanatour.
IMM signed a deal with Hanatour last December to take control of the travel agency through a third-party allotment of shares. The buyout firm was initially supposed to buy those shares for 58,000 won per share.
The travel agency and the PEF eventually agreed to cut the price of new stocks to 55,500 won per share, taking account of the tourism industry downturn amid the pandemic. Hana Financial Investment analyst Lee Ki-hoon said: “IMM's decision to issue new stocks at 55,500 won per share means it will likely carry out large-scale restructuring.”