Aekyung Group, which has actively supported struggling or investment-needing affiliates by using affiliate stocks as collateral, has recently found itself in a dilemma. Following the incident at Muan International Airport involving Jeju Air, the stock price of Jeju Air, which served as the group's 'cash cow' (a company with strong cash generation capacity), has dropped, and its performance is expected to take a hit. Other affiliates are also not in a good position, making the diversification of funding sources an important task for the entire group.
According to the Financial Supervisory Service's electronic disclosure system on the 19th, AK Plaza borrowed approximately 100 billion won from its holding company, AK Holdings, on the 13th. In December of last year, AK Plaza also raised about 60 billion won from AK Holdings. At that time, AK Holdings supported the funding in the form of a capital increase allocated to shareholders. Within less than a month, 160 billion won flowed into AK Plaza, with assistance from AK Holdings.
Until now, AK Holdings has actively engaged in financing and investment for its subsidiaries. It has primarily raised funds using stocks of its affiliates as collateral. As of the end of the third quarter last year, approximately 60% of AK Holdings' total borrowings were collateral loans.
A representative affiliate is Jeju Air. Until the tragedy involving Jeju Air's aircraft at the end of last year, Jeju Air was considered the group's cash cow. AK Holdings also borrowed about 250 billion won in the form of stock collateral loans and exchangeable bonds using Jeju Air shares as collateral.
However, for the time being, expectations for Jeju Air must be lowered. This is due to increased anxiety surrounding flights with Jeju Air following the disaster at the end of last year. Jeju Air is waiving cancellation fees for domestic and international flights scheduled to depart before March 29. Consequently, cash outflows are inevitable, and a decline in performance is unavoidable.
The stock price trends of other affiliates, Aekyung Chemical and Aekyung Industrial, are also not favorable. Aekyung Chemical is struggling due to poor petrochemical market conditions, and Aekyung Industrial is in a position that requires addressing the environmental disaster related to the humidifier disinfectant issue that surfaced in 2011. The Ministry of Environment plans to establish a social consultative body for the ultimate resolution of the humidifier disinfectant incident this year and to prepare measures to secure the effectiveness of coordination through the body and stabilize the victim compensation fund, intending to revise the humidifier disinfectant damage relief law in the second half of the year.
If further stock collateral loans are difficult, attention must turn to bond issuance. However, AK Holdings recently canceled its plans for public bond issuance. According to Nice Credit Rating, the cancellation of bond issuance also led to the cancellation of the credit rating assigned to AK Holdings. AK Holdings stated, "We prepared for the issuance of corporate bonds for stable and efficient fundraising, but determined that it was not the appropriate time, prompting us to reconsider the bond issuance." Capital market officials believe that the Jeju Air disaster influenced the cancellation of the bond issuance.
In the capital market, attention has shifted recently from just AK Plaza, Jeju Air, and AK Holdings to the funding situation of Aekyung Asset Management. Aekyung Asset Management occupies a vital position within Aekyung Group. It is essentially the holding company for Aekyung Group, which operates the hot spring resort Terme Eden. The family of Chairman Jang Young-shin of Aekyung Group holds 100% of Aekyung Asset Management's equity, and Aekyung Asset Management owns 18.91% of AK Holdings.
So far, Aekyung Asset Management has been raising funds using the affiliate stocks it holds as collateral. In August 2023, Aekyung Asset Management borrowed 10 billion won from a financial institution using AK Holdings shares as collateral, with a maturity set for July 1 of this year. Additionally, it borrowed 30 billion won using Aekyung Industrial shares as collateral and 21 billion won using Jeju Air shares as collateral. This was prompted by accumulated operating losses of approximately 100 billion won from 2020 to 2022 due to the impact of COVID-19. Last year, it reported an operating profit of 4.3 billion won.
A capital market official noted, "Major subsidiaries have been exposed to adverse events, starting with retail and chemicals, and now aviation, while the performance of Holdings and its upper-tier holding company is also not in good shape. Therefore, for the time being, attention should be focused on cash flow for the entire group."