HDC Hyundai Development Co., a midsized construction company, signed a deal on Friday to acquire Asiana Airlines Inc. as the South Korean builder strives to diversify its business portfolio.
In their board meetings held early Friday, HDC and Kumho Industrial Co., a construction unit of Kumho Asiana Group, approved the deal.
The signing comes after the consortium formed between HDC and Mirae Asset Daewoo was picked the preferred bidder last month to acquire a 30.77-percent Asiana stake held by Kumho Industrial, as well as new shares to be issued and the airline's six affiliates, for 2.5 trillion won ($2.2 billion).
"We will immediately jump into the process to take over Asiana Airlines in order to (financially) stabilize the company and turn it into a top-tier air carrier in terms of safety," HDC Hyundai Development Chairman Chung Mong-gyu said in a statement.
HDC plans to seek measures to generate win-win synergies with Asiana in a variety of business fields, the chairman said, without elaborating.
The company plans to invest 2.177 trillion won in new shares to be issued by Asiana Airlines to help improve the airline's financial status. It will focus on improving profitability by streamlining routes and enhancing cost effectiveness, the statement said.
HDC expected the capital injection to help lower the airline's debt-to-equity ratio to 300 percent from 660 percent.
HDC said it will pay 322.8 billion won for the existing 68.69 million Asiana stocks at 4,700 won per share. Kumho Industrial said it plans to spend some of the money to repay debt it owes to the state-run Korea Development Bank and other local lenders.
In the deal, Kumho Industrial has also agreed to be responsible for 9.9 percent of any possible contingent liabilities and taxes of Asiana Airlines after acquisition.
The 31 percent stake was valued at 365 billion won at the closing price of 5,310 won on Nov. 7 when the consortia submitted their final bids to the deal's lead manager, Credit Suisse.
HDC plans to complete the overall acquisition process by April next year. It is expected to own a 61.5 percent stake in Asiana Airlines after the planned rights issue, with Mirae Asset Daewoo set to have a 15 percent stake in the carrier.
On Friday, Asiana Airlines fell 3.4 percent to 5,430 won and HDC Hyundai Development declined 1 percent to 25,750 won, underperforming the broader KOSPI's 0.3 percent gain.
Investors are offloading the stocks on profit-taking as the deal has been widely expected to be signed within this year, analysts said.
Last month, the HDC-Mirae consortium beat two consortia led by airline-to-cosmetics conglomerate Aekyung Group and homegrown private equity fund Korea Corporate Governance Improvement, respectively, in the auction for Asiana Airlines and its six affiliates that include low-cost carriers Air Busan and Air Seoul Inc.
In 2018, Asiana Airlines and its main creditor KDB signed a deal that required the country's second-biggest air carrier to secure liquidity through sales of assets and other means.
Asiana Airlines currently owes financial institutions a total of 3 trillion won, with 150 billion won of loans due to mature by the end of this year.
From January-September, Asiana posted a net loss of 524.14 billion won, swinging from a net profit of 6.33 billion won a year ago.
A combination of lower demand for travel to Japan amid a trade dispute, a weak won against the dollar and lower cargo-carrying volumes dealt a blow to the earnings results.
It also shifted to an operating loss of 173.88 billion won from an operating profit of 186.52 billion won during the cited period.
Sales fell 2.4 percent to 5.30 trillion won from 5.43 trillion won. (Yonhap)