Korean Air Lines Co. has raised 3.32 trillion won ($2.9 billion) from a new share sale as planned in the the largest-ever rights offering by a domestic company. The flag carrier in South Korea will use 1.5 trillion won of the proceeds to fund its 1.8 trillion won acquisition of local rival Asiana Airlines Inc., with the remainder going to repay debt to bolster its balance sheet.
The new shares were priced at 19,100 won apiece, compared with its Friday closing price of 27,700 won. They were 104% oversubscribed by existing shareholders during the Mar. 4-5 subscription period, according to investment banking sources on Mar. 7.
Despite only 80% of the portion for its employee stock ownership association being booked, other Korean Air shareholders aggressively bid for the new shares offered at a 31% discount to Friday’s closing price. The rights issue followed the company's 1.13 trillion won new share sale in July 2020, and will list on Mar. 24.
Its solid 2020 earnings and the upbeat outlook for its post-merger, post-coronavirus operations as the country's sole full-service airline stoked demand for the shares.
Korean Air's share price has remained firm even following its rights offering announcement in November 2020. After its share price soared to a 19-month high of 35,200 won in late January, Korean Air revised up its 14,400 won offering price by 32%, boosting its capital raising by 800 billion won from its initially planned 2.5 trillion won.
Last year, Korean Air posted 238.3 billion won in
operating profit, a 17% year-on-year drop, despite a 40% tumble in revenue. Brisk cargo operations offset a drastic drop in passenger flights.
To take over cash-strapped Asiana, Korean Air will pump in 1.5 trillion won to buy news shares to be issued by the latter, while acquiring 300 billion won worth of perpetual bonds in the country’s second-largest carrier.
The acquisition will be completed upon approval by antitrust regulators from South Korea and nine other countries where it competes with their flag carriers.
Korea’s Fair Trade Commission is expected to approve of the deal, set to create the world’s seventh-largest carrier, in July at the earliest.
After repaying 1.8 trillion won worth of debt, Korea Air's debt-to-equity ratio will decline from 674.1% at the end of last year. Its debt ratio will drop further once it sells the undeveloped Songhyun-dong land to the Seoul metropolitan government, for which it is in the final stages of talks.
Write to Jin-Seong Kim at
jskim1028@hankyung.comYeonhee Kim edited this article.
