Today Hanjin Kal Injunction Hearing on New Share Issuance... Three Parties in Brinkmanship Standoff

Korean Air's First Hurdle in Acquiring Asiana Airlines

[Image source=Yonhap News]

[Asia Economy Reporters Jeongsoo Lim, Jehun Yoo] The fate of the aviation industry's 'big deal' hinges on the hearing for the injunction against Hanjin KAL's third-party allotment capital increase, scheduled for the 25th. Key stakeholders involved in this deal, including KDB Industrial Bank, the Hanjin Group, and the shareholder alliance for the normalization of the Hanjin Group (known as the Third-Party Alliance), have been engaged in a high-stakes public relations battle ahead of the court hearing, with the final decision expected no later than next week when the injunction ruling is announced.

According to the aviation industry, the Seoul Central District Court Civil Division 50 (Chief Judge Seungryeon Lee) will hold a hearing at 5 p.m. on the same day regarding the injunction application filed by KCGI to prohibit the issuance of new shares by Hanjin KAL. In this hearing, the law firm Hwawoo (representing the Hanjin Group) and the law firm Bae, Kim & Lee LLC (representing the Third-Party Alliance) will act on behalf of both parties. Considering that the payment date for KDB Industrial Bank's third-party allotment capital increase in Hanjin KAL is on the 2nd of next month, industry insiders expect the court's final decision to be made as early as this week or by early next week following this hearing.

The two sides have differing views on the deal structure involving KDB Industrial Bank's participation in Hanjin KAL's third-party allotment capital increase for Korean Air's acquisition of Asiana Airlines. If this proceeds as planned, KDB Industrial Bank would secure approximately 10.66% of Hanjin KAL's shares, potentially reversing the current management rights dispute where the Third-Party Alliance holds a superior shareholding position. According to Article 418 of the current Commercial Act and Article 165, Paragraph 6 of the Financial Investment Services and Capital Markets Act (Capital Markets Act), new shares may be allocated to parties other than shareholders as stipulated in the articles of incorporation when necessary to achieve the company's 'business purposes' such as introducing new technologies or improving financial structure.

Public relations battles between the two sides have reached a critical point ahead of the injunction hearing. The Hanjin Group stated, "If the injunction is granted, the aviation industry will collapse. The jobs of over 100,000 people are more important than the interests of private equity funds," adding, "KCGI's shareholder allotment capital increase and Hanjin KAL's asset sales are unrealistic demands." KCGI CEO Kang Sung-bu countered, saying, "If the Industrial Bank wants to support Hanjin KAL, it should provide loans secured by real estate owned by the group, not a third-party allotment capital increase," and insisted, "It is appropriate to participate in Korean Air's capital increase so that Korean Air can acquire Asiana Airlines."

The ball is now in the court's hands. If the injunction application is granted, it would be a major setback for KDB Industrial Bank and the Hanjin Group; if dismissed, it would be a significant blow to the Third-Party Alliance led by KCGI. Primarily, if the injunction is granted, Korean Air's acquisition of Asiana Airlines is likely to be effectively nullified.

If dismissed, Korean Air's acquisition of Asiana Airlines will gain momentum. However, the Third-Party Alliance has few effective cards to play if the injunction is dismissed. The alliance has requested Hanjin KAL to hold an extraordinary general meeting of shareholders. In the regular shareholders' meeting last March, the alliance nominated candidates including former POSCO Board Chairman Kim Shin-bae for director positions, but all proposed candidates were rejected.

The Hanjin KAL board is expected not to accept the Third-Party Alliance's request to hold an extraordinary shareholders' meeting. The board argues that the request does not meet the necessary requirements, such as specifying the number of director candidates and the number of directors to be appointed in the agenda for the extraordinary meeting, making it difficult to accept. In this case, KCGI may resort to legal measures to compel the convocation of the extraordinary shareholders' meeting. However, considering the procedural timeline, the extraordinary meeting would likely be held only in early next year, well past the payment date for Hanjin KAL's third-party allotment capital increase.