Credit rating agencies discreet about aviation deal

27-Nov-2020 Intellasia | KoreaTimes | 6:02 AM Print This Post

Domestic and global credit rating agencies are maintaining a cautious stance toward the possible impact of Korean Air owner Hanjin Group’s plan to acquire Asiana Airlines on its subsidiaries as there still remain uncertainties over the proposed deal.

Moody’s Investors Service is considering upgrading the credit rating of Hanjin International, a wholly-owned Korean Air subsidiary which manages the Wilshire Grand centre building in Los Angeles.

“The review for upgrade reflects our expectation that the proposed acquisition, if completed, will significantly improve Korean Air’s scale and competitive position. Additionally, Korean Air’s planned equity raising and increased importance to the Korean economy will substantially mitigate the risk associated with Asiana’s poor liquidity and financial leverage,” Moody’s analyst Sean Hwang said.

“The resultant improvement in Korean Air’s credit quality would in turn benefit Hanjin International’s credit quality, given the likelihood that Korean Air will provide financial support to Hanjin International when needed.”

The global agency expected Korean Air’s market shares for international passenger business and cargo will grow 38 percent and 67 percent, respectively, from a year earlier, if the deal is successful.

The nation’s three largest agencies are also keeping a close eye on the progress of the deal.

Korea Ratings changed its outlooks on Korean Air and Hanjin KAL, the Hanjin Group’s holding firm, to “negative” from “negative review,” saying it will continue to monitor the impact of the Asiana acquisition.

“The closure of the deal could be delayed because there are too many variables, such as a backlash from shareholders, and litigation,” Korea Ratings analyst Ji Kwang-hun said. “Korean Air will not be able to enjoy the positive effect of the acquisition, unless business conditions are normalised.”

NICE Investors Service said the planned acquisition of Asiana will have a limited impact on Korean Air’s credit rating at this moment.

It cited the lawsuit against Hanjin Group filed by activist fund Korea Corporate Governance Improvement (KCGI), one of Hanjin KAL’s major shareholders opposing the acquisition, as an example of obstacles and uncertainties facing the deal.

Korea Investors Service said the acquisition will lighten the downward pressure on credit ratings of both Korean Air and Asiana. However, it mentioned several key factors to monitor, such as the battle for Hanjin KAL’s managerial rights, merger reviews in concerned countries and the planned issuance of new shares.


Category: Korea

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