[After CB Issuance] T'way Holdings Struggles as T'way Air Becomes a Leaky Bucket

Increased Financial Burden for Funding Subsidiary Support
Limited Capacity to Respond to Early Redemption of CB·BW
Double Hardship in Economic Downturn Due to Inflation

[Asia Economy Reporter Hyungsoo Park] Amid a slower-than-expected recovery in the aviation industry, T'way Holdings continues to face a crisis. The repayment burden of convertible bonds (CB) and bonds with warrants (BW) issued to support its core subsidiary T'way Air during the past two years of sharply reduced air travel demand due to COVID-19 has increased.

According to the Financial Supervisory Service's electronic disclosure system on the 28th, T'way Holdings lowered the conversion price of the convertible bonds (CB) issued in March from 728 won to 619 won, a 15% decrease. The number of convertible shares increased from 8.93 million to 10.5 million shares. Although the conversion price was adjusted, it remains higher than the current stock price of 563 won. Early redemption requests can be made every three months starting from September 25 next year.

Previously, in October 2020, T'way Holdings issued bonds with warrants (BW) worth 3 billion won. Early redemption can be requested from October last year until July next year. The exercise price has been lowered to 703 won. The outstanding balance is 29.3 billion won, which corresponds to 41.66 million shares if the warrants are exercised.

Since T'way Holdings' stock price is below both the CB conversion price and BW exercise price, there is a high possibility of early redemption requests. As of the end of March, cash and cash equivalents stood at 11.2 billion won, which is insufficient to respond to early redemption demands. Additionally, the consolidated debt ratio reached 1278%, making it difficult to borrow additional funds to repay debts.

T'way Holdings has used most of the funds raised in the past to support its subsidiary T'way Air. Earlier, T'way Air conducted a rights offering worth 121 billion won in April. T'way Holdings subscribed to only a portion of the newly issued shares. After the rights offering, the number of shares held increased from 58.18 million to 60.35 million, but the stake decreased from 40.92% to 31.4%.

Yerimdang, the largest shareholder of T'way Holdings, participated in T'way Air's capital increase by acquiring warrants. Yerimdang newly acquired 3.7 million shares (1.93%) of T'way Air. The combined stake of T'way Holdings and its related parties is 33.47%.

Senior researcher Ahyoung Moon of NICE Credit Rating commented, "The large-scale rights offering by the core subsidiary T'way Air has alleviated financial burdens and short-term liquidity risks," adding, "The burden of supporting subsidiaries for T'way Holdings has decreased for a certain period." However, she emphasized, "It is expected to be difficult for T'way Air to turn a profit in the short term. Considering the negative impact of exchange rate increases on pre-tax profitability, financial stability is likely to gradually deteriorate compared to the current level."

Lacking independent cash-generating ability, T'way Holdings' chances of escaping the crisis increase the sooner its subsidiary T'way Air turns profitable. If T'way Air raises additional funds, dilution of its stake and consequent reduction in influence are inevitable.

When T'way Air issued 80 billion won worth of convertible preferred shares (CPS) last year, T'way Holdings entered into a shareholder agreement with W Value Up LLC. If W Value Up's investment recovery amount falls short of 87.5% of the acquisition price, T'way Holdings agreed to compensate the difference. If T'way Holdings lacks the financial capacity to cover losses, W Value Up can exercise a pledge on 53.58 million shares of T'way Air.

T'way Holdings has already supported T'way Air through most available means. In the first quarter of this year, T'way Air recorded sales of 59.7 billion won and an operating loss of 39 billion won. If the turnaround to profitability is delayed, there may be limits to sustaining operations with funds raised through capital increases.

Researcher Sooyoung Park of Hanwha Investment & Securities explained, "As the stock market fears, a severe economic recession may follow inflation, and passenger demand recovery could be more inelastic than expected." He further analyzed, "With the reality of consumption polarization, the relative advantage of large full-service carriers (FSCs) capable of catering to premium demand will stand out."