HDC seeks to renegotiate Asiana deal amid pandemic

HDC Hyundai Development on Tuesday said it hopes to renegotiate its deal for acquiring South Korean flag carrier Asiana Airlines given the business turmoil caused by the COVID-19 pandemic.

The midsized South Korean builder has requested Asiana’s creditors and its largest shareholder Kumho Industrial to modify the conditions of the takeover.

The company said it has not received “sufficient and trustworthy data” about Asiana’s financial status or an explanation for the changes to that status since the contract was signed. 

HDC said it has sent requests to renegotiate the terms of the acquisition more than 11 times since April. 

In December, an HDC-Mirae Asset consortium inked a deal with Kumho Industrial to acquire its controlling 31 percent stake in the country’s second-largest air carrier under a plan to diversify its business portfolio. 

But since the outbreak of the novel coronavirus in January, Asiana has scaled back services on 79 percent of its lucrative China routes and suspended most of its international routes. 

This undermined the air carrier’s fiscal health, raising concerns that HDC might back away from its plan to acquire the company for 2.2 trillion won ($1.84 billion).

But HDC said in a statement that it still wishes to “successfully complete the acquisition deal through sincere efforts and renegotiation of takeover conditions between the creditors (including the Korea Development Bank) and contracting parties.”

Last week, with the contract expiry date approaching on June 27, Asiana’s creditors including the KDB sent HDC a notice, asking it to clarify whether it still intends to acquire the cash-strapped air carrier. 

KDB has been pushing HDC to improve the terms of the acquisition, including the price of Asiana Airlines’ old stocks, which HDC is buying to increase its capital.

“We replied to KDB that we agree to extend the long-stop date of the deal to review the situations that are negatively affecting the acquisition process and renegotiate the acquisition,” HDC said in a statement. 

Market observers said HDC’s latest position signaled the start of a tit-for-tat between the firm and the creditors over the terms and conditions. 

HDC said it has discovered “unexpected” information that significantly affects the value of the Asiana acquisition deal.

The company said as of 2019, Asiana had gained 2.8 trillion won worth of extra debt and borrowed an additional 1.7 trillion won, increasing its debt by 4.5 trillion won altogether. 

In the first quarter, the air carrier’s debt-equity ratio increased by 16,126 percent compared with the second half last year. Its net losses for the January-March quarter deteriorated to 683 billion won from some 89 billion won a year earlier.

HDC also said that in April, Asiana’s board approved taking out an additional loan and injecting 140 billion won into its cash-strapped affiliates without asking HDC first. 

HDC had planned to complete the deal by the end of April but postponed the acquisition date to “a date agreed by both parties.” 

Based on the two deals clinched in December -- one involving the acquisition of Kumho Industrial’s 30.77 percent stake, or 68.6 million worth of “old shares” in Asiana, for 322.8 billion won, and the other involving the purchase of new Asiana shares for 2.17 trillion won -- HDC has to receive approval for the merger from six of the nations that Asiana flies to. 

So far, the US, China, Uzbekistan, Turkey and Kazakhstan have granted approval and only Russia has not. To stay afloat, Asiana has been conducting self-rescue plans since April, putting all 10,500 of its employees on unpaid leave under a rotation system and asking its executives to take a 60 percent pay cut.

By Kim Da-sol (ddd@heraldcorp.com)