[Weekly HOT Stocks] Korean Air Acquiring Asiana Airlines... Mixed Expectations and Concerns

From the 16th to the 20th, individual investors net purchased KRW 164.1 billion worth of Korean Air shares

As Korean Air moves forward with the acquisition of Asiana Airlines, passenger planes from Korean Air and Asiana Airlines are parked behind the construction site of the 4th runway at Incheon International Airport on the 17th. Photo by Mun Ho-nam munonam@

[Asia Economy Reporter Kum Boryeong] Korean Air attracted concentrated market attention over the course of a week after deciding to acquire Asiana Airlines.

According to the Korea Exchange on the 21st, individual investors net purchased Korean Air shares worth 164.1 billion KRW from the 16th to the 20th. During this period, Korean Air ranked second among the top stocks net purchased by individual investors.

On the 16th, Hanjin KAL announced the signing of an investment agreement with Korea Development Bank. The agreement includes raising a total of 800 billion KRW by signing a new share subscription contract (subscription payment of 500 billion KRW) and an exchangeable bond subscription contract (bond subscription payment of 300 billion KRW) with Korea Development Bank, lending this amount to Korean Air, and then participating in Korean Air’s rights offering. The conditions also include Korean Air’s acquisition of 300 billion KRW worth of perpetual convertible bonds and 1.5 trillion KRW worth of new shares issued by Asiana Airlines.

Lee Sung-jae, a researcher at Shinhan Financial Investment, explained, "The scale of Korean Air’s rights offering is 2.5 trillion KRW. One trillion KRW will be used for debt repayment, and 1.5 trillion KRW for acquiring Asiana Airlines’ shares. Hanjin KAL’s participation in the rights offering is 731.7 billion KRW, which will be offset against the loan already paid, so the actual debt repayment effect is expected to be less than 300 billion KRW."

The market showed mixed expectations and concerns regarding Korean Air’s acquisition of Asiana Airlines. On the 16th, when the acquisition news was announced, Korean Air’s stock price closed at 26,950 KRW, up 12.53% (3,000 KRW) from the previous trading day, reflecting optimism. However, the stock price continued to decline to 24,550 KRW on the 17th, 23,900 KRW on the 18th, and 23,200 KRW on the 19th, showing some concerns.

Kim Pyeong-mo, a researcher at DB Financial Investment, analyzed, "If the rights offering is completed, Korean Air will secure an additional 1.5 trillion KRW in funds excluding the acquisition cost of Asiana Airlines. This means securing stable resources amid uncertain recovery in the passenger sector. Considering that Asiana Airlines maintained a profit trend in the third quarter through high profitability in the cargo sector, concerns about further deterioration of the financial structure are expected to be low. The issue lies in the synergy effect from the acquisition. The major passenger routes of the two airlines do not overlap significantly, but there is overlap in personnel and low-cost carriers (LCCs). In particular, Asiana Airlines owns two LCCs, Air Busan and Air Seoul, and most of their routes overlap with Jin Air, so additional route rationalization will be necessary," he explained.