Korean Air postpones US$300m bond issuance

[THE INVESTOR]  Korean Air, South Korea’s largest air carrier, has postponed its plan to raise US$300 million through the sale of 30-year hybrid bonds as potential investors demanded a higher interest rate, according to sources on Sept. 28.

Korean Air initially planned to offer the bonds from Sept. 30.

“The company started to gauge global institutional investors’ demand for the bond sale for two days from Sept. 26, but decided to put off the issuance as the interest rate that investors demanded was excessively high,” an official at an investment bank said. 

The air carrier had suggested 7 percent annual return for the bonds compared with 5.18 percent for the company’s 3-year, Korean won-denominated corporate bonds.

Seeking higher interest rate shows institutional investors’ concern that Korean Air could persistently provide financial support for the cash-strapped Hanjin Shipping, experts said.

The company will push for the bond sale again this year.

Korean Air had planned to use proceeds from the bond sale to improve its deteriorated financial health, hit by multibillion won fund support for its embattled affiliate Hanjin Shipping and a series of aircraft purchases.

The company’s debt-to-equity ratio jumped to 1109 percent as of June from 771 percent in 2012. A successful US$300 million hybrid bond sale could lower the figure to 930 percent.

Korean Air, the biggest shareholder of Hanjin Shipping, has offered some 820 billion won to the container carrier since 2013, including 60 billion won to help offload cargo that has been stranded on Hanjin ships last week.

By Park Han-na (hnpark@heraldcorp.com)