Asiana Airlines Faces Urgent Challenge in Responding to CP Maturity

Repayment Due to Market Freeze, Unable to Rollover Maturing Volume
390 Billion KRW Maturing by June
Concerns Over Early ABS Repayment Trigger Due to Delayed Rights Offering

[Asia Economy Reporter Lim Jeong-su] Asiana Airlines is facing an emergency in managing the maturity of short-term marketable securities such as commercial papers (CP) and electronic short-term bonds. CPs amounting to 400 billion KRW are maturing by June, but due to the tightening of the CP market caused by the COVID-19 pandemic, refinancing issuance has not been possible. With the expected delay in HDC Hyundai Development Company's paid-in capital increase, liquidity concerns are gradually growing.

According to the Korea Securities Depository on the 2nd, Asiana Airlines must repay or refinance CPs (including electronic short-term bonds) worth 473.6 billion KRW within the year. Of this, 390 billion KRW worth must be resolved within the second quarter. Securities firms such as Mirae Asset Daewoo, KB Securities, NH Investment & Securities, Korea Investment & Securities, Shin Young Securities, Hi Investment & Securities, Hanwha Securities, and IBK Investment & Securities have underwritten and sold these to money market funds (MMF) and short-term financial trusts (MT) that manage short-term funds.

However, as the CP market rapidly cooled, refinancing issuance has been blocked since March. Therefore, since late February, when 42 billion KRW worth of CP was refinanced, Asiana Airlines has been continuously repaying maturing amounts. It is analyzed that a total of 95 billion KRW worth of CP has been repaid from late February to the present.

The upcoming maturity amounts are also significant. In April alone, CP maturities of 170 billion KRW are pending. In May, another 170 billion KRW must be repaid. The burden of working capital due to decreased sales combined with CP repayments makes securing liquidity urgent. Asiana Airlines’ CP credit rating is low at A3-, making it difficult to expect support from bond stabilization funds.

An investment banking (IB) industry official said, "Most of the short-term bank borrowings secured by collateral provided to the Korea Development Bank and the Export-Import Bank can be refinanced, but for CPs, refinancing issuance will not be easy unless the market sentiment improves."

Additionally, the risk of early redemption of asset-backed securities (ABS) is increasing. With the paid-in capital increase by HDC Hyundai Development Company scheduled for the 7th becoming uncertain, concerns are rising that Asiana Airlines’ credit rating could be downgraded to speculative grade. If the credit rating falls further, early redemption demands on ABS worth 850 billion KRW could arise.

An IB industry official stated, "Recently, refinancing of aircraft fare receivables securitization commercial papers (ABCP) issued by Asiana Airlines has not been completed, causing securities firms to bear the burden," adding, "The burden on securities firms regarding Asiana Airlines’ securitized borrowings is increasing." Another official said, "Although the aircraft fare collateral for ABS is sufficient to avoid immediate early redemption demands, if the capital increase is delayed and liquidity conditions continue to worsen, the possibility of redemption demands cannot be ruled out."

The success of the paid-in capital increase is the biggest variable. It is known that HDC Hyundai Development Company and the Korea Development Bank are continuing a tug-of-war over the acquisition price of Asiana Airlines. An industry insider said, "In a situation where the sale of Asiana Airlines could fail, would the Korea Development Bank refuse HDC’s support request?" but also expressed concern, "If the capital increase continues to be delayed, serious liquidity problems could occur."