Will Korean Air and Asiana Merge... Today's the 'Day of Destiny'

Court Rules on KCGI's 'Prohibition of New Share Issuance Injunction' Application on the 1st
If New Share Issuance Decision is Invalidated, KDB's Investment Also Nullified

As the court's decision on Korean Air's acquisition of Asiana Airlines approaches, on the 30th, Korean Air and Asiana Airlines passenger planes were moving toward the runway at Gimpo Airport apron in Gangseo-gu, Seoul. The Seoul Central District Court is expected to deliver a ruling today or tomorrow on the injunction request filed by activist private equity fund KCGI against Hanjin KAL to prohibit the issuance of new shares. If the court dismisses the injunction request, the acquisition process will accelerate, but if the injunction is granted, the acquisition is likely to be canceled. Photo by Kim Hyun-min kimhyun81@

[Asia Economy Reporter Jo Gang-wook] The court decision that will determine the fate of the merger between Korean Air and Asiana Airlines is expected on the 1st.

According to financial and legal circles, the ruling on the injunction request filed by Grace Holdings, an investment purpose company under KCGI, to prohibit the issuance of new shares by Hanjin KAL is scheduled to be announced today.

Earlier, KCGI argued that the method of raising funds for Korean Air's acquisition of Asiana Airlines was illegal and filed an injunction to nullify the issuance of new shares in the third-party allotment capital increase of Hanjin KAL, in which the Korea Development Bank (KDB) participates.

KDB plans to invest 800 billion KRW in Hanjin KAL for the integration of the two airlines, of which 500 billion KRW will be through participation in the third-party allotment capital increase.

The Seoul Central District Court heard both parties' opinions on the 25th of last month and has been reviewing the legal issues after receiving rebuttal briefs. Since the payment date for KDB's capital increase in Hanjin KAL is on the 2nd of this month, the court's decision must come by the 1st at the latest.

If the court dismisses the injunction request, the acquisition process is expected to accelerate. Hanjin KAL will secure funds through KDB's payment for the capital increase on the 2nd and then proceed with Korean Air's capital increase to officially begin the acquisition of Asiana.

If the decision to issue new shares is invalidated, KDB's investment will be nullified and Korean Air's acquisition of Asiana Airlines will collapse. By next year, Korean Air will need about 2 trillion KRW, and Asiana Airlines will require up to 1.7 trillion KRW in funds.

In particular, Asiana Airlines is highly likely to enter a path of de facto nationalization, following a capital reduction at the end of this year and KDB's conversion of debt to equity. Asiana Airlines will inevitably enter restructuring under creditor management.