Chairman Kang Seok-hoon of Korea Development Bank (KDB) said, “We have no plan B if Korean Air’s merger with Asiana Airlines fails.”
KDB Chairman Kang made the remarks while holding a meeting with reporters celebrating his first year in his office, at KDB headquarters in Yeouido, Seoul, on June 20.
The outcome of the multiple reviews of the merger by the EU and Japan — crucial for the go-ahead of the transaction — are to come out in the third quarter of this year.
Chairman Kang said KDB was not considering plan B in case Korean Air’s merger with Asiana Airlines fails, and now is the time for the two airliners to concentrate their capabilities on the merger, not bracing for any failure.
Korean Air and Asiana Airline are seeking to implement the merger. If the two airlines want to be consolidated, they have to obtain the greenlight from 13 competition authorities.
Ten countries have completed their investigation into the transaction, but approvals by the United States, EU and Japan are pending.
“With the merger of the two airliners in discussion for more than two years, it is a cautious part to predict the ultimate outcome, and If (the United States, EU and Japan) will not grant their approvals, it will not take so long, so it is in an unpredictable situation,” Kang said.
He predicted that the outcomes of their reviews will come out at least in the third quarter of the year.
Chairman Kang said it is true that U.S. and EU competition authorities’ review is tricky, and the merger is not an easy job, but KDB is encouraging Korean Air to persuade foreign competition authorities that Korean Air’s merger with Asiana Airlines is essential for the survival of Asiana Airlines and the restructuring of the Korean aviation industry.
He said KDB is doing its utmost to complete reviews as soon as possible by asking for support from ministries.
As for concerns over additional slot reductions in the course of the merger, Chairman Kang said it is an important issue over how much, not the slot reduction itself.
Korean Air is making efforts to minimize slot reductions in the process of merging the airliners, which is not rare cases like this, he said.
Chairman Kang spoke of possibly striking a share purchase agreement on the disposal of a stake in HMM. KDB is the biggest shareholder of HMM with a 20.69 percent stake.
“We expect an entity determined to contribute the development of the Korean shipping industry through acquisition and capable of securing funds and managing to take over HMM, and details of the sale, now under way, cannot be given, but there a not a few companies which have shown their interest in it,” Chairman Kang said.
How to dispose of the remaining stake in HMM, including perpetual bonds, will be determined in the process of the disposal, and it will be readjusted during negotiations with the related party, he said.
Chairman Kang touched on the high probability of the third attempt to sell KDB Life, and he said a few companies are known to have shown interest.
In order to dispose of KDB Life, he said, KDB conducted a 75 percent capital reduction without refunds and reduced losses carried forward to improve its financial structure last May.
Chairman Kang alluded a need for KDB’s capital increase.
KDB saw its operating assets surge while serving as a safety valve for the financial market due to the spread of the COVID-19 pandemic and the debt rate standing at 13.11 percent as of the end of the first quarter of the year.
That is beyond of the recommended level of 13 percent, due to snowballing losses of Korea Electric Power Corp., KDB’s disposal of a stake in HMM is essential to stabilize its financial structure, which is vulnerable to outside factors, and KDB is calling for the government’s considering its specialties as for dividends.
KDB is discussing ways of raising 700 billion in subordinated bonds on its own and increasing capital by raising profitability, and KDB is discussing an option of contributing in kind with the government, but it is not easy, he said.