Shareholders in Korea’s Asiana back 3-to-1 capital cut

In another move that smoothes its acquisition by Korean Air (KE, Seoul Incheon), shareholders at debt-riddled Asiana Airlines (OZ, Seoul Incheon) have approved a share capital reduction plan without the availability of compensation, Nikkei Asia and Korea JoongAng Daily reported. Those present at the extraordinary meeting on December 14 control 41.8% of the airline’s voting rights and 96.1% of them voted in favour of the three-to-one scheme, in which three common shares in Asiana will be worth one. On December 28, the number of Asiana Airlines shares will drop from 223.24 million to 74.41 million, while the company’s capital will reduce to KRW372.1 billion won (USD340 million) from the current KRW1.12 trillion (USD1 billion). The development will help Asiana offset part of its deficit, which by the end of September had reached KRW1.5 trillion (USD1.37 billion). Kumho Petrochemical, the second-biggest shareholder (11.02%), was absent from the meeting and protested against the plan, arguing that the biggest stakeholder, Kumho Industrial (30.77%) should take greater responsibility for the company’s poor finances and relinquish more shares than the other shareholders. “Considering the direct impact of this unprecedented pandemic, we cannot rule out limitation on stock trading or a credit ratings cut unless we reduce the share capital,” Asiana Airlines explained in a statement. It added that as of the second quarter of 2020, its capital erosion rate had been 56.3%. Without a capital reduction, the possibility of a lowering of its credit rating could not be ruled out. The proposed merger of South Korea’s biggest airlines has worried some observers, concerned that Korean Air would be taking on Asiana’s heavy debt pile. However, shareholder approval of reducing share capital means the flag carrier will have a lighter burden after the acquisition if it goes ahead.