Korean Air Lines Co., South Korea's top air carrier, is going all out to secure liquidity by issuing a large amount of asset-backed securities in an apparent bid to handle maturing debt, industry sources said Tuesday.
Korean Air, whose parent Hanjin Group is beset by a liquidity crisis engulfing its shipping arm, floated some 340 billion won ($287 million) worth of ABS in April and May. The airline is also considering issuing an additional 700 billion won in July.
Last year, Korea Air issued 570 billion won worth of ABS, or a financial security backed by underlying assets such as a loan, lease or receivables. Korean Air's ABS is based mainly on the proceeds from future ticket sales.
"Korean Air has a plan to issue 700 billion won worth of ABS next month," a market watcher said. "The company is considering the option to increase the amount."
On top of ABS sales, Korea Air floated 520 billion won worth of local- and foreign-currency bonds this year.
Analysts attributed the jump in Korean Air's ABS issuance to the recent drop in the airline's credit rating, which makes it hard to raise money in the corporate bond market.
In late March, Korea Investors Service Inc. downgraded its credit rating on Korean Air to BBB plus from A minus, in a major setback for the air carrier.
According to market watchers, Korean Air is in dire need of cash as a considerable amount of its debt comes due this year. The company is estimated to see 760 billion won worth of bonds and ABS mature this year.
In addition, Korean Air's short-term debt, which should be paid back within a year, stood at approximately 800 billion won as of the end of March this year.
Some analysts said Korean Air may find it difficult to roll over its maturing debt as banks have toughened their lending terms amid the country's sweeping corporate restructuring drive and the airline faces risks from investments in affiliates.
"Korean Air's exposure to troubled Hanjin Shipping Co. amounts to about 500 billion won," said Kang Dong-jin, a researcher at HMC Investment Securities Co. "In addition, the market situation is not favorable for Korean Air in the second half of this year due to increased competition and the sluggish cargo business."
In the first quarter of this year, Korean Air's operating profit soared 70.2 percent on-year to 323.3 billion won, but it posted a net loss of 177.6 billion won due to a poor performance by the non-operating sector.
Last month, creditors of Hanjin Shipping, South Korea's biggest container carrier, accepted its debt restructuring plan and a three-month suspension on all payments of principal and interest.
Hanjin Shipping has long been beleaguered by a business slump and operating losses. (Yonhap)
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