Asiana Airlines’ liquidity at risk as ratings on verge of junk

SEOUL • Concern about Asiana Airlines Inc’s liquidity is rising after two rating firms warned its debt score may be cut to junk due to a lack of transparency in its 2018 financial report.

The South Korean carrier’s BBB-rating, the lowest investment-grade level, was put on negative review by both Korea Investors Service (KIS) and NICE Investors Service last Friday after Asiana announced it got a “qualified” opinion for its annual report from its auditor, Samil PricewaterhouseCoopers.

The problem is that most of the carrier’s asset-backed securities (ABS) and some of its long-term debt includes a stipulation that will force it to make an early repayment in the event its rating is cut by one level to speculative grade. At the end of last year, Asiana had about 1.1 trillion won (RM3.94 billion) of ABS and 258 billion won of long-term debt that included the trigger, according to Mirae Asset Daewoo Co Ltd.

Asiana, Korea’s second-largest airline, faces “material uncertainty” in its business, with its current liabilities surpassing current assets by 1.8 trillion won at the end of 2018, according to Samil PricewaterhouseCoopers’ review.

Full-service airlines such as Asiana have been hurt by competition from low-cost carriers, as well as fluctuations in oil prices and currency exchange rates.

Samil PricewaterhouseCoopers cited a lack of details on provisions for leasing aircraft and the value of some assets, as well as financial information for Air Busan, a Korean budget airline in which Asiana has a 44.17% stake.

Asiana will get another audit as soon as possible, a spokesperson said yesterday.

The weakened reliability of Asiana’s financial reporting may decrease its access to capital markets and raise the possibility of liquidity risk, according to KIS, the local affiliate of Moody’s Investors Service Inc. It said that was one reason for its negative rating review.

The impact of Asiana’s debt woes on South Korea’s overall credit market will probably be limited for now because most of its bonds are likely held by individual buyers, meaning that institutional investors won’t be affected much, Park Jin-young, credit analyst at Hyundai Motor Securities, wrote in a note yesterday.

Asiana’s 60 billion won of notes due April 25 will be delisted, the exchange said last Friday. It sold 85 billion won of hybrid securities at 8.5% via a private placement on March 15, according to Korea Exchange data. Its share trading will resume today under a watchlist. — Bloomberg