South Korea’s public pension fund the National Pension Service said Tuesday it would vote against Korean Air’s plan to issue new common shares, which is deemed pivotal to the planned takeover of debt-ridden rival Asiana Airlines.

NPS, which was holding a 6.96 percent stake in Korean Air as of September, said in a statement the flag carrier’s move to issue new shares is detrimental to its shareholder value.

The red flags range from Korean Air‘s hasty decision to acquire the rival without proper due diligence to exclusion of terms that allow Korean Air to terminate the deal at Asiana’s fault, said the nation’s largest institutional investor, which oversees over 770 trillion won ($707.4 billion) in financial assets.

Its stance has been confirmed in the meeting of NPS’ in-house special committee on fiduciary responsibility Tuesday.

The news comes just a day before Korean Air’s shareholders meeting scheduled for Wednesday. Korean Air is seeking shareholder approval for increasing the number of authorized shares, from 250 million to 700 million.

The revision of Korean Air‘s articles of incorporation is required to move on to proceed with Korean Air’s Asiana acquisition. To carry out a 2.5 trillion-won new share offering, Korean Air has to issue 173.6 million new shares, adding to its existing 174.2 million outstanding shares.

The proposed acquisition is largely orchestrated by the state-led Korea Development Bank, a main creditor of Asiana Airlines. After its talks with local builder Hyundai Development collapsed in 2020 as the aviation industry suffered the COVID-19 impact, KDB in November brought Korean Air to the negotiating table. KDB injected 700 billion won in fresh capital to Korean Air‘s largest shareholder Hanjin KAL, holding some 30 percent shares, to induce Korean Air to buy a controlling stake in Asiana.

By Son Ji-hyoung (consnow@heraldcorp.com)