HDC Hyundai Development Company Bond Sale Flops... Only 11 Billion Won Raised Out of 300 Billion Won

[Asia Economy Reporter Koh Hyung-kwang] HDC Hyundai Development Company's corporate bond issuance intended to fund the acquisition of Asiana Airlines ended in failure. This signals a red light for Hyundai Development's acquisition of Asiana Airlines.

According to industry sources on the 11th, HDC Hyundai Steel conducted a demand forecast for institutional investors on the 6th for a total corporate bond issuance of 300 billion KRW, but only received applications worth 11 billion KRW. For the 2-year bonds targeting 150 billion KRW, only 1 billion KRW was subscribed, and for the 5-year bonds planned to raise 50 billion KRW, 10 billion KRW was gathered. No subscriptions were made for the 3-year bonds worth 100 billion KRW.

Considering that the corporate bond market has recently stabilized and Hyundai Development's credit rating is A+ (negative), such a large-scale undersubscription is unusual.

This is due to concerns that Hyundai Development's financial condition will deteriorate after acquiring Asiana Airlines. Hyundai Development planned to use 140 billion KRW for debt repayment and 160 billion KRW for the acquisition through this bond issuance.

At the end of last year, Hyundai Development decided to spend 2 trillion KRW (including 320 billion KRW in paid-in capital increase) to acquire Asiana Airlines. The acquisition funds were planned to be raised through cash on hand and borrowings. As of the end of the first quarter, Hyundai Development's cash and cash equivalents amounted to 652 billion KRW, indicating a need for borrowing.

However, due to the impact of the novel coronavirus disease (COVID-19) on the aviation industry, the funds required by Asiana Airlines are increasing. At the end of last month, Asiana Airlines issued perpetual private placement convertible bonds (CB) worth 300 billion KRW to the Korea Development Bank and the Export-Import Bank of Korea, but it needs to raise an additional 1.5 trillion KRW (remaining basis) this year for refinancing and other purposes.

The inevitability of operating losses due to COVID-19 is also a problem. The average expected operating loss for Asiana Airlines this year is 364.6 billion KRW. A securities firm official said, "As market expectations grew that HDC Hyundai Steel's financial condition would worsen after planning to acquire Asiana, the corporate bond issuance failed to attract interest."