Asiana No-Deal Lawsuit Battle Foreseen... Blame Game Escalates with Responsibility Shifting

HDC Hyundai Development Company Statement Released the Day Before: "Kumho Only Concerned with Protecting Its Own Interests"
Kumho Industrial Sends Official Letter Stating 'Contract Termination Possible After the 12th, Forfeiture of Penalty Fees'

[Asia Economy Reporter Jo Gang-wook] As the possibility of a 'no deal' increases regarding the sale of Asiana Airlines, there is speculation that HDC Hyundai Development Company and Kumho Industrial may eventually enter into a legal battle over the deposit. The Korea Development Bank (KDB) has stated that if the sale fails, it will first place the airline under creditor management and then seek to resell it, but voices are growing that it is unlikely a buyer will emerge amid the economic downturn caused by the COVID-19 pandemic. Some even express concerns that Asiana Airlines might follow the path of Daewoo Shipbuilding & Marine Engineering, which drifted for over 20 years without finding an owner.

According to industry sources on the 7th, Kumho Industrial and HDC Hyundai Development Company are blaming each other for the delay in the Asiana Airlines M&A. HDC Hyundai Development Company stated in a press release the day before, "Kumho Industrial is only concerned with protecting its own interests," and emphasized, "If the contract is terminated, Kumho Industrial is responsible." They particularly noted, "The changes in the financial statements that make it impossible to proceed with the contract violate the basic contractual condition that 'representations and warranties must be true'." This is interpreted as an indication that they will file a lawsuit to recover the deposit if the acquisition fails.

Earlier, Kumho Industrial sent a letter to HDC Hyundai Development Company stating that "after the 12th of this month, contract termination and forfeiture of the penalty are possible." Subsequently, KDB Chairman Lee Dong-gull personally raised his voice, saying, "If the Asiana Airlines acquisition contract fails, HDC Hyundai Development Company bears all responsibility." Chairman Lee also mentioned that a lawsuit to recover the deposit would be inevitable if the contract fails, but that neither Kumho Industrial nor KDB has done anything wrong.

The market views that both parties have already concluded that the contract will fail and are taking actions to clarify responsibility. The fact that HDC Hyundai Development Company issued a statement harshly criticizing Kumho Industrial instead of KDB is also analyzed as an attempt to highlight the other party's fault. The subject of the deposit refund lawsuit is not the creditor KDB but the two parties involved?the seller Kumho Industrial and the buyer HDC Hyundai Development Company.

Aside from the legal battle, there is also interest in what will happen to Asiana Airlines' future. For now, KDB plans to place Asiana Airlines under creditor management if the sale fails. If the creditor group, including KDB, converts the 800 billion KRW of perpetual bonds they currently hold in Asiana Airlines into equity, they will hold a 36.9% stake and become the largest shareholder. However, this is not a 'nationalization' of Asiana Airlines; rather, they intend to monitor market conditions and pursue resale in the future.

However, it is uncertain whether groups such as SK Group, Hanwha Group, and CJ Group, which were mentioned early in the Asiana Airlines acquisition process, will enter the M&A market. Asiana Airlines had a debt ratio of 6279% as of the first quarter, more than ten times higher than other airlines. The fastest and most effective financial restructuring plan would be workforce restructuring, but high-intensity restructuring could cause side effects and is something the government is reluctant to pursue. Currently, rumors of a 2 trillion KRW plus alpha scale Industrial Stabilization Fund support for Asiana Airlines are emerging, which is also a burden for companies. At least 10% of the total support amount is acquired as equity-linked securities, which could later become a channel for government intervention in corporate management.

Some point out that Asiana Airlines could become a 'money pit' like Daewoo Shipbuilding & Marine Engineering. Daewoo Shipbuilding & Marine Engineering remained government-owned for over 20 years and overcame several crises through liquidity support. Approximately 10 trillion KRW was provided during this process. Additionally, subsidiaries such as KDB Life Insurance and Daewoo Construction, which KDB must resolve, remain.

A financial industry official said, "It is questionable whether any company will show interest in Asiana Airlines, which has been left battered through the M&A process," and pointed out, "Although KDB will manage and attempt to normalize operations, it could ultimately end up like Daewoo Shipbuilding & Marine Engineering, sustained by massive taxpayer money."