Dramatic Reversal and Uncertain Outlook Highlight Lee Dong-geol Card
If Final Breakdown Occurs, Asiana Normalization Enters Maze... Likely to Follow Daewoo Shipbuilding & Marine Engineering Path
Industry Consensus: "HDC Hyundai Development Company Expected to Abandon Asiana Acquisition"
[Asia Economy Reporters Inho Yoo and Hyewon Kim] Lee Dong-geol, Chairman of KDB Industrial Bank, and Chung Mong-gyu, Chairman of HDC Hyundai Development Company, will meet again on the afternoon of the 26th at an undisclosed location in Seoul to discuss the acquisition of Asiana Airlines. This meeting follows Chairman Lee's proposal on the 20th to "meet as soon as possible," which Chairman Chung accepted.
This meeting between the two chairmen is effectively the final negotiation for the Asiana Airlines merger and acquisition (M&A). Since the Industrial Bank intends to conclude the M&A decision by early next month, the deal is likely to fall through unless the two chairmen reach an agreement. Previously, Chairman Lee and Chairman Chung met twice. On both occasions, Chairman Lee initiated the meetings and conveyed the intention to promptly resume the M&A, but no meaningful agreement was reached.
Industry consensus suggests that a dramatic turnaround is unlikely even in this crucial meeting that will determine the fate of the Asiana Airlines M&A. Recently, the CEOs of HDC Hyundai Development Company and Kumho Industrial met to discuss issues such as the re-inspection of Asiana Airlines, but only reaffirmed their differences, and the positions of both sides remain parallel.
The acquiring party, HDC Hyundai Development Company, has consistently demanded a 12-week re-inspection. They argue that the environment has completely changed due to the COVID-19 pandemic, but the selling party, Kumho Industrial, and the creditors maintain an unacceptable stance. In this meeting, Chairman Chung is expected to express the view that further deal discussions are meaningless without the re-inspection and strongly urge for it.
Since early April, HDC Hyundai Development Company has sent 15 formal letters detailing items requiring re-examination to Kumho Industrial and Asiana Airlines, but they claim they have not received sufficient official data or even basic contracts. A representative from HDC Hyundai Development Company said, "The re-inspection is an essential process for the normalization of Asiana Airlines. Optimistic forecasts based on unreliable financial statements alone cannot restore Asiana Airlines to normalcy." Analysts suggest that Chairman Chung's firm stance despite the Industrial Bank's opposition to the re-inspection request is a step to build justification in anticipation of a lawsuit to recover part of the 250 billion won deposit if the deal falls through.
The key lies in the new card Chairman Lee will present. The Industrial Bank may accept HDC Hyundai Development Company's re-inspection request, which it has rejected so far, by making it conditional on the acquisition of Asiana Airlines, thereby reducing the inspection period and scope. They may also offer incentives such as extending loan repayment terms or lowering interest rates to overcome management difficulties. The creditors' plan to convert perpetual bonds into equity is also being discussed.
If HDC Hyundai Development Company rejects even these counterproposals, it can only be seen as an intention to break the deal without a genuine acquisition will. One insider commented, "Considering HDC Hyundai Development Company's initial active participation in the acquisition, their stance has completely reversed after encountering the COVID-19 variable. It seems they want to break the deal but do not want to take full responsibility for contract termination, so they are engaged in a standoff." Another insider said, "From HDC Hyundai Development Company's perspective, giving up the acquisition might be a wise decision. The aviation industry is in a very difficult situation, expecting the market to normalize around 2022 after recovering from COVID-19."
If the final negotiation between the two chairmen also fails, it is expected that Asiana Airlines will face a long period of instability before finding a new owner, following the precedent of Daewoo Shipbuilding & Marine Engineering. The creditors are expected to become the largest shareholders of Asiana Airlines through equity conversion, and restructuring will likely begin in earnest.
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