Korean Air Lines Co. ended last year with a credit rating downgrade and debt-to-equity ratio approaching 1,000 percent â€” the worst among Asian full-service carriers. Investors of the money-losing airline face an even bleaker 2017 as a weaker won raises the cost of repaying foreign debt.
The Korean currency is projected to weaken around 7 percent against the dollar by December, according to the median of forecasts in a Bloomberg survey of analysts.
Asiana and Korean Air both face the prospect of credit rating cuts this year, according to Korea Investors Service, the local affiliate of Moodyâ€™s Investors Service. Korean Airâ€™s debt-to-equity level stood at about 917 percent as of the quarter ended Sept. 30, based on company filings. It could â€œhave easily gone over 1,000 percentâ€™â€™ by the fourth quarter, said Kim Bong-kyun, an evaluation team manager at Korea Ratings, a local affiliate of Fitch Ratings.
â€œThe operating environment is likely to become less favorable this year, and airlines will find it even more difficult to ease their debt burdens,â€ said Kim Jung-hoon, an analyst at Korea Investors Service. â€œWe are seeing more reasons for downward credit rating revisions,â€™â€™ he said in an interview in January.
Korean Airâ€™s leverage ratio trails only Air Canada among full-service airlines worldwide, according to data compiled by Bloomberg. Together with Asiana, they are among the most indebted among Asian full-service carriers, the data show.
Last month, Korean Air said it plans to issue 450 billion won of new shares to be used for working capital. It didnâ€™t proceed with an earlier plan to sell around $100 million of 30-year bonds not callable for three years in September.
Korean Air currently has no fundraising plan apart from rights issue, and is working to address its debt problems, said a company official who declined to be identified, citing the carrierâ€™s policy.
The rights offer plan is positive for Korean Airâ€™s cash flows but likely wonâ€™t be enough to significantly ease the carrierâ€™s worsening financial structure due to expected net losses for the year ended December, Korea Investors Service said in a report last month.
â€œWe will have to see how their efforts actually show in numbers,â€ said Kim Hong-joong, the Seoul-based head of fixed income at Hanwha Asset Management Co., which oversees 76 trillion won in assets. â€œSo far, it has not been adequate.â€
Korean Air is scheduled to announce results Wednesday, with the company projected to post its fourth straight annual net loss. Analysts predict Korea Air will report a net loss of 399 billion won for 2016, according to the average of 14 estimates
compiled by Bloomberg.