News
Asiana Airlines bidding opens to weak response
August 30th 2019
Only AK Group reported to be interested. Initial bids due September 3. Read More »
Interested bidders for Kumho’s 31% holding in Asiana Airlines are expected to deliver initial bids to Credit Suisse by September 3, according to a widely held but unconfirmed timetable that also predicts a final decision on the fate of the holding will be made in October. Asiana creditor, Korea Development Bank, is requiring the airline to secure liquidity.
The 31% of Asiana is being offered for sale by Kumho unit, Kumho Engineering & Construction, but interest in the sale appears even weaker than initial low expectations. The Korean won’s weakness, a decline in the Korea-Japan travel market and weakening financials in the Korean airline industry appear to be adding challenges to already sceptical suitors. Korean media calculates the holding is worth US$382 million based on Asiana’s recent stock price, but Asiana carries high debt and it needs investment that amounts to multiples of the stake value.
The high total long-term cost has seen only big businesses – Korea’s chaebols – express interest or believed to be interested, including SK, Hanwha, CJ, and Aekyung. Most recently, only Aekyung confirmed its interest. Aekyung or AK is the major shareholder in Korea’s largest LCC, Jeju Air. AK interest presents financial and competitive issues.
Financially, AK alone does not have enough cash to purchase the Asiana holding. AK does not appear to have received a strong reception to forming a consortium to purchase the stake. It includes Asiana’s investments in Air Busan and Air Seoul, potentially raising anti-competitive concerns.
Activist shareholder Korea Corporate Governance Improvement (KCGI) has expressed interest. It too lacks funds, so is expected to attempt to form a consortium. KCGI has a minority holding in Korean Air’s parent owner, which it does not plan to divest in order to help buy Asiana.
The Korean Air stake is a central talking point of KCGI CEO, Kang Sung-boo, who sees KCGI bringing together Korean Air and Asiana, although regulators will surely object. "I believe KCGI could contribute to the industry by strengthening ties between the nation's two largest airliners to overcome it," he told Korean media.
Kang laments all of Korean aviation is in crisis due to too many airlines and prospective entrants awaiting final approval. KCGI favours the consolidation level that has occurred in the U.S. through mergers and outright exits. At the very least, KCGI’s statements have increased various airline stock prices in Korea.
KCGI and AK confirmed they received the formal Information Memorandum from Credit Suisse. CJ, Hanwha and SK said they did not receive it. A final selection is expected to be made in October, with the transaction closing by the end of the year.
