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Chaotic market puts fate of Korean M&As to test

Grim outlook overshadows landmark investment deals of HDC, Mirae Asset 

Hyundai Development Company's office in Seoul (HDC)
Hyundai Development Company's office in Seoul (HDC)

Over the past few months since the outbreak of the novel coronavirus, some employees of Hyundai Development Company, a local real estate developer under the pan-Hyundai empire, have been walking on thin ice.

The market is facing a pandemic test, they said, pointing out the company’s landmark deal to acquire Asiana Airlines, the nation’s second-largest air carrier. The market hit by once-in-a-generation crisis could undermine the financial soundness of the company, not to mention the falling market value of the transport company it is set to acquire.

Joining forces with local brokerage Mirae Asset Daewoo in December, HDC agreed with Kumho Industrial, a transportation firm and parent company of Asiana Airlines, to take over the money-hemorrhaging airline for 2.5 trillion won ($2 billion).

Many HDC employees had hailed news reports of a potential delay or cancellation of the deal early this month, but their delight and relief was short-lived as HDC co-CEO Kwon Soon-ho, at a shareholders meeting on March 25, reaffirmed to proceed with the deal as previously planned,” said an industry source from the construction sector, who hoped to remain anonymous because of the sensitivity of the matter.

“There are mounting concerns that the planned acquisition of the airline could add pressure on Hyundai, which has already faced a downward trend in the construction industry amid the coronavirus crisis,” the source added.

Together with Mirae Asset Daewoo, HDC bought 30.77 percent stake, worth 322.8 billion won, in the airline in December while planning to wrap up the deal by purchasing 2.18 trillion won of the airline’s new stocks in April.

Some market watchers are of the view, however, that HDC could fail to meet the deadline for the payment in April, raising alarm about its financial soundness, which is expected to see its profits drop significantly in the first three quarter.

HDC is forecast to post 88 billion won in operating profit in the first three months, down nearly half from a year earlier, while the local airline is expected to mark an operating loss of 89.8 billion won, according to financial market tracker FnGuide.

The overall debt of HDC, which stood at 570 billion won in December, will likely increase to 2.3 trillion won after the acquisition is completed. Annual interest costs that HDC has to pay for the deal will likely reach 50 billion won, undermining its profits, according to market analysts.

HDC has said that “rumored troubles for funding the acquisition is groundless, and the deal is on the right track.”

Concerns over a liquidity crunch are also spreading like wildfire across industries. Amid the looming liquidity crunch, asset management firm Mirae Asset Financial Group has been striving to keep its $5.8 billion deal to acquire 15 US luxury hotels alive. Late last year, it signed a contract with Chinese financial conglomerate Anbang Insurance Group to acquire the US hotels. Since then, the Korean firm has been struggling to find investors who have seemingly lost their risk appetite for coronavirus-battered hotel businesses.

“Receiving loans and attracting investments will not be easy for local asset management firms, like Mirae Asset, now as many global financial companies are trying to keep their money in dollars in this tumultuous market,” an industry source from the local investment segment.

“What is worse is that the deadly coronavirus could seriously undercut profits of those hotels, which have already seen their occupancy rate sharply decline.”

CJ CGV, a multiplex theater company, on the other hand, is rumored to be on the brink of bankruptcy.

The cinema chain operator has closed 35 of its theaters in the domestic market from March 28, which account for some 30 percent of its 116 theaters. It will also cut salaries of executives and employees up to 30 percent while laying off up to 50 percent of its employees, according to industry sources. The company has been reportedly working on selling stakes in global branches to financial investors, but it has officially denied the report.

“The worst has yet to come for CJ CGV,” said an industry official on condition of anonymity, adding that “as movie shootings and releases have all been suspended indefinitely in both Korea and Hollywood, the multiplex chain could be in a serious trouble down the road.”

By Kim Young-won (