Asiana Airlines faces downgrade to “junk” status after M&A deal flop

2020.09.16 13:30:41 | 2020.09.16 16:46:09

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South Korea’s No. 2 full-service carrier Asiana Airlines Inc. could become downgraded to a “junk” status after its fate went up in the air due to the flop in the planned sale to a HDC Hyundai Development consortium.

Seoul-based credit rating firm Korea Investors Service (KIS) on Tuesday said it will review a downward revision of Asiana Airlines’s rating by a notch to BB+ from current BBB-. The downgrade to BB+ would place the airline at non-investment speculative level, a junk status.

The agency will finalize rating after studying the airlines’ business results from the July-September quarter, it said.

The Korean credit rating agency has alerted of downgrade on Asiana Airlines, citing the official cancellation of the stake sale deal between Kumho Industrial Co. and HDC Hyundai Development-Mirae Asset Daewoo consortium. The deal flop has dismissed the chance for easing Asiana Airlines’ financial distress through new largest shareholders’ aids, said Park So-young, a senior analyst at Korea Investors Service.

The Korean government and the airlines’ creditors have vowed to provide 2.4 trillion won ($2 billion) worth aids - 1.9 trillion won in loans for operation and 480 billion won in purchase of convertible bond to keep the airline afloat. But the volume of convertible bonds, which feature attributes of assets, is too low, said Park as she explained such an aid would not help much to drastically turn around the company’s financial fundamental.

The termination of the buyout deal, in contrast, has lifted the burden for HDC Hyundai Development. The KIS on the same day maintained the ratings on the real estate development and construction company and its unsecured bonds at A+, the same as before, with a “stable” outlook. The agency also removed the company from the group for downgrade review.

A legal dispute is expected over returning of 250 billion won that the consortium had paid upfront for the acquisition deal, but the impact on HDC Hyundai Development’s credit standing would be limited even if the entire 201 billion won that the company had paid becomes written off as a loss, said Park.

Another local rating agency, Korea Ratings, on Tuesday, also kept the rating on HDC Hyundai Development’s unsecured bonds the same at A+ with a stable outlook, while removing the company from its downgrade review group.

On Wednesday, Asiana Airlines ended down 1 percent at 3,955 won while Kumho Industrial finished up 0.88 percent at 6,900 won. HDC Hyundai Development stock fell 2.29 percent to 23,500 won.

By Kim Gyu-sik and Cho Jeehyun

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