Korean Air fails to attract bond investors on Hanjin Shipping woes

Korean Air failed to attract investors to its bonds due to growing risks stemming from its cash-strapped subsidiary Hanjin Shipping, according to news reports that cited investment banking sources.

The listed Korean flag carrier, with a credit rating of BBB-plus, was seeking to issue bonds worth 250 billion won ($218 million) with a two-year maturity through its underwriters – Dongbu Securities, Kiwoom Securities, Korea Investment & Securities and Hyundai Securities.

However, the company only saw institutional investors willing to invest about 7 billion won in Korean Air’s bonds during the book building process.

Noh Sang-won, an analyst at Dongbu Securities, said that Korean Air faces risks due to a liquidity shortage at Hanjin Shipping.

“Despite expectations of improved earnings, its subsidiary risk remains a negative factor that can affect the value of Korean Air,” Noh said in his analysis report.

“It is highly likely that Korean Air will further provide (liquidity) support to Hanjin Shipping.”

Korean Air lent 250 billion won to Hanjin in 2013, and invested 400 billion won in new shares issued by Hanjin in 2014. The carrier also invested 220 billion won in perpetual bonds of Hanjin early this year. Hanjin Shipping recently sold its London office building to improve its finances.

Korean Air, which has a 33 percent stake in Hanjin Shipping, is expected to post an operating profit of about 266 billion won in the first quarter of this year, a 40 percent increase from a year ago, on growing flight services.

By Park Hyong-ki (hkp@heraldcorp.com)