Eximbank does not yet consider converting Korean Air permanent convertible bonds into shares
The Export-Import Bank of Korea (Eximbank) has no plans to convert Korean Air permanent convertible bonds it acquired in June last year into common stock, according to media reports.
The state bank’s position is quite different from that of the Korea Development Bank (KDB) regarding its holdings of HMM convertible bonds. In June of last year, the KDB suggested it could convert bonds into stocks because otherwise it could be accused of breach of trust.
Eximbank and KDB bought 300 billion won of Korean Air’s permanent bonds in June 2020, with Eximbank providing 120 billion won. The bonds can be converted into ordinary shares one year after their issuance.
The two banks convert their permanent bonds into 20,399,836 ordinary shares as of June 22. The conversion price is 14,706 won per share. Since Korean Air’s share price is 30,800 won based on the October 14 closing price, the two banks can achieve more than 100% ROI when converting their bonds.
On the other hand, if the two banks do not exercise their prepayment rights by June 22, 2022, Korean Air will buy back the permanent bonds. In this case, it is difficult for the two banks to avoid being accused of breach of trust.
However, Eximbank has yet to come up with a plan to convert the permanent bonds into common stock. âThe permanent bonds were issued to help standardize the management of Korean Air,â the bank said. “Now is not the right time to exercise the right of conversion as the management of Korean Air has not been fully standardized. We will continue to monitor the management of the airline.”