Doubts grow over HDC’s bid for Asiana
Doubts are growing over a bid by Hyundai Development Company (HDC) to acquire Asiana Airlines, adding more uncertainty over the construction firm which has been struggling with the sluggish construction market, according to industry analysts Wednesday.
Some say the bid is risky, as HDC’s portfolio of home construction and leisure facility development has little in common with the airline business and investors are showing a harsh response to the bid.
According to HDC, it has formed a consortium with Korea’s largest brokerage, Mirae Asset Daewoo, and joined the preliminary bidding for the cash-strapped carrier.
The company said it decided to participate in the bidding after considering the potential synergy with its existing businesses.
HDC has been expanding its portfolio recently to cover hotel, resort and duty free businesses. If the company acquires Asiana Airlines, those businesses can create synergy and lower the company’s high reliance on the construction market. The company also had abundant cash and cashable assets, amounting to 1.6 trillion won, at the end of June.
However, analysts showed a negative response to the builder’s decision, saying construction has little to do with airlines.
“HDC’s Asiana Airlines bid does not correspond to the company’s strategy to diversify its portfolio,” KTB Securities analyst Kim Sun-mi said. “By nature, an airline’s business performance fluctuates and has little in common with HDC’s development business.”
“The company has rich opportunities for investment in social overhead capital and a slew of other development businesses, but decided to join the bidding for Asiana Airlines, which could be regrettable.”
Apparently, investors agree with Kim’s assessment. On Tuesday, when the Asiana bid was reported, HDC’s share ended at 32,650 won, shedding 9.43 percent from a day earlier. It also showed a downturn Wednesday, declining 0.77 percent from the previous day to end at 32,400 won. “The company’s main business of construction, which is facing a gloomy outlook, has little in common with airlines,” KB Securities analyst Chang Moon-joon said.
“With additional uncertainties stemming from the bid weighing on the company, its shares will likely stumble for a while. A rebound can be expected if the bid fails.”
Analysts’ and investors’ doubts are stemming from the carrier’s huge debt.
The entire deal is valued at between 1.5 trillion won and 2 trillion won, but Asiana’s total debt stood at 9.6 trillion won at the end of the first half of the year. Since the buyer has to shoulder this, preliminary bidding that closed Tuesday was relatively low key, without the participation of conglomerates such as SK, GS or Hanwha.
“If HDC purchases Asiana, the company can pursue synergy between the carrier and its duty free business, but this alone is unlikely to compensate for the carrier’s huge debt and unstable free cash flow,” KTB’s Kim said.
For the sale, Kumho Engineering & Construction, Asiana Airlines’ holding firm, will put its 31 percent in the carrier up for sale and the carrier will issue new rights for the buyer.
After the preliminary bidding, Kumho will create a shortlist by the end of September. The main bid is scheduled to proceed in October. The company is expected to start negotiating with a preferred bidder in November.
Chung Mong-gyu HDC Group chairman