The biggest shareholder in Jeju Air (7C, Jeju), AK Holdings, also the holding company of South Korean cosmetics and health conglomerate Aekyung Group, is arranging a fundraising of up to KRW100 billion won (USD74.4 million) to strengthen the budget carrier’s long-haul fleet by acquiring B737-8 aircraft, “multiple sources” in the finance sector told the Maeil business newspaper on August 19.
The holding company plans to offer this amount’s worth of exchangeable bonds - a bond with an option to exchange it for shares - in Jeju Air. The securities will be designed to carry a coupon rate of 0% and a maturity yield of 3%. Investors can covert them into the airline’s shares within three months and will have the option to redeem their investment after two years.
Ten or so local asset managers and private equity funds are potential candidates for the deal, which will be completed early next month, the sources said.
AK Holdings plans to channel all of the proceeds in the measure towards Jeju Air, through a capital increase via shareholder allocation. The carrier will then be in a stronger financial position to bring in “next-generation aircraft”, namely the Boeing MAX narrowbody, with the aspiration of widening the gap between it and other low-cost carriers.
Jeju Air has already outlined plans to buy 40 of the new aircraft from the US manufacturer starting next year. Earlier this year, it also said it was planning to add an unspecified number of B737 freighters.
Although Jeju Air received an additional dose of state aid at the end of last year, it has since managed to narrow its losses and posted an operating loss of KRW55 billion (USD41 million) in the second quarter as international flights began to resume. It issued its own bonds in May.
“AK Holdings has a stable cash flow, and investors can bet on a further rise in Jeju Air stock,” said an unnamed official from an investment bank. “Many institutions are said to have strong interest in the bonds.”
