The first recipient of the Kian Fund is Korean Air... Asiana's inclusion is unlikely

Emergency Funds from Former Support National Policy Banks... 1.2 Trillion Won Transferred to Ki-An Fund
40 Trillion Won Borrowings Due This Year, Creditors Demand Additional Capital Increase
Additional Fund Support Expected
Asiana, Acquisition Status Considered and Deferred

[Asia Economy Reporter Jo Gang-wook] As the 40 trillion won-scale Industrial Stabilization Fund (GISF) begins full operation, the first recipient company is expected to be Korean Air. This is because a plan is underway to transfer the 1.2 trillion won emergency funds provided by state-run banks such as the Korea Development Bank and the Export-Import Bank of Korea to Korean Air into the GISF. On the other hand, Asiana Airlines is likely to have its GISF transfer postponed due to the special circumstances of being in the process of a merger and acquisition (M&A).

According to the financial sector on the 1st, the Financial Services Commission plans to transfer the state-run bank support amount for Korean Air to the GISF. Previously, the Financial Services Commission had planned to support Korean Air through the GISF, but since it took time to activate the fund, liquidity was first supplied to Korean Air in the form of emergency support from state-run banks. Given the strong 'pre-support' nature before the fund's activation, the plan is to absorb the support amount for Korean Air into the fund, which will be fully operational starting this week. Financial Services Commission Chairman Eun Sung-soo also said to reporters after the GISF launch ceremony on the 29th of last month, "Korean Air was struggling to breathe, so we could not wait for the fund to launch, and the Korea Development Bank provided the money first. Now that the fund has launched, if the bank requests, we must transfer it."

In addition, regardless of whether the pre-support funds are converted into the fund, additional support for Korean Air through the GISF is expected. As of the first quarter of this year, Korean Air’s total borrowings, including bank loans, financial leases, corporate bonds, and asset-backed securities (ABS), are estimated to exceed 11.3 trillion won. Among these, borrowings maturing this year exceed 3.3 trillion won. Adding the new type of capital securities (7.011 billion won) that are entering the initial early redemption period this year, the borrowings maturing this year increase to about 4 trillion won.

However, creditors such as the Korea Development Bank and the Export-Import Bank of Korea have recently reportedly demanded additional capital increases from Korean Air by the end of the year. This is because Korean Air’s efforts such as a 1 trillion won paid-in capital increase and asset sales are deemed insufficient to overcome the liquidity crisis by year-end. Although a 2 trillion won capital increase by the end of next year was already requested along with the 1.2 trillion won pre-support, the timing has been accelerated. The market interprets that the possibility of the sale of the Songhyeon-dong site in Jongno-gu, Seoul, which Korean Air was proceeding with, being canceled due to Seoul City’s park development plan has also influenced this.

On the other hand, Asiana Airlines, which received 1.7 trillion won in support from state-run banks, is unlikely to be included as a GISF support target for the time being. This is because the current acquisition situation by HDC Hyundai Development Company must be considered. Since Asiana Airlines is currently undergoing an M&A process, transferring the support funds to the GISF could cause issues regarding the negotiation party. Recently, rumors of HDC Hyundai Development Company’s withdrawal from the acquisition of Asiana Airlines have surfaced, and if the worst-case scenario of withdrawal occurs, the support funds for Asiana Airlines may also be transferred to the GISF.

Meanwhile, the GISF Operation Deliberation Committee, composed of seven members, is scheduled to hold its second meeting on the 4th to discuss fund operation plans. Accordingly, the outline of the next support target of the GISF, which has entered full activity since the launch ceremony on the 29th of last month, is likely to be revealed after this meeting.