Korea Development Bank to inject W800 bil. for Korean Air's takeover of Asiana
Korea Development Bank Chairman Lee Dong-gull speaks during an online press conference at its headquarters in Seoul, Monday. Courtesy of Korea Development Bank
By Lee Min-hyung
The Korea Development Bank (KDB) will invest 800 billion won ($721.3 million) to help Korean Air acquire Asiana Airlines, despite fierce opposition from a coalition of shareholders in the country's largest domestic airline ― led by former Vice President Cho Hyun-ah.
The state-run lender and main creditor of the cash-strapped Asiana also vowed Monday to finalize the investment by the end of the year amid deepening concerns in the local aviation industry as major carriers have failed to recover from the aftermath of the COVID-19 pandemic.
Under the decision, the KDB will inject the capital into Hanjin KAL, the holding company of Korean Air's parent Hanjin Group. Korean Air will increase its capital of 2.5 trillion won through a new shares issuance next year. Hanjin KAL will purchase these shares worth 730 billion won using the KDB capital.
Korean Air also plans to purchase Asiana shares and bonds worth 1.8 trillion won, as part of a last step in becoming the biggest shareholder of the nation's second-largest carrier.
“The new integrated airline will be able to secure competitiveness, and a reputation as the world's 10th largest carrier following the deal,” KDB Chairman Lee Dong-gull said in an online press conference Monday. “The decision came amid growing calls for the KDB to take a more pre-emptive measure to salvage the aviation industry which has suffered the most damage from the prolonged coronavirus shock.”
The announcement comes after a much-anticipated takeover of Asiana by Hyundai Development Company collapsed in mid-September. The state lender said since then it had contacted five other conglomerates for a prompt sale of the sagging airline, but none of them showed any interest in the deal, citing lingering uncertainties surrounding the aviation industry.
The KDB underlined it would ensure ethical management at the Hanjin Group by establishing a committee dedicated to conducting an annual ethics evaluation of the firm's top management. This move follows Korean Air and Hanjin Group making worldwide headlines due to certain unethical behavior by members of the owner family.
“Cho Hyun-min, the younger sister of Hanjin Group Chairman Cho Won-tae, and Lee Myung-hee, the widow of Hanjin Group's late chairman Cho Yang-ho, will not take part in the management of Hanjin's aviation affiliates,” KDB Vice President Choi Dae-hyun told reporters during the press conference.
As expected, a coalition of Hanjin KAL's major shareholders ― including the ex-vice president, the Korea Corporate Governance Improvement (KCGI) private equity fund and Bando Group ― expressed discomfort with the KDB's decision. They have a 46.71 percent stake in Hanjn KAL, while Chairman Cho holds 41.4 percent of its shares.
“We strongly oppose the KDB's attempt to help defend the managerial right of Hanjin Group by using taxpayers' money without any private investment from Chairman Cho,” the KCGI said in a statement. It also said it was considering various legal measures to block Hanjin KAL's capital increase.
Unsurprisingly, the mega deal is expected to draw a severe backlash particularly from Asiana's union amid concerns that Hanjin KAL may cut the former's workforce through organizational restructuring during or after the takeover.
The country's anti-trust regulator ― the Fair Trade Commission ― is widely expected to approve the suggested takeover despite monopoly concerns as the takeover is the only available card for Cheong Wa Dae to save the aviation industry from a complete collapse. The approval is likely to spark more controversy over whether the KDB injected taxpayers' money to salvage a failing private company.