Asiana Airlines Inc., South Korea’s No. 2 carrier, is increasingly dogged by rising borrowing costs just as stiff competition from low-cost rivals looms over a potential rebound in its China business.
The Bank of Korea’s first interest-rate increase
China restricted group tours to South Korea after the latter deployed the U.S. anti-missile system Thaad, but the two nations agreed to put aside the dispute in October. While that
“The BOK rate hike could make it more difficult for lower-rated companies to raise funds considering that absolute yields are rising,” said Kim Sang-hun, a credit analyst at Shinhan Investment in Seoul. “They will likely continue to face a difficult funding environment next year unless the government does something.”
The airline has limited possibility to improve its profits because of the expanding presence of low-cost carriers and its delay in modernizing its fleet, said KIS, the local affiliate of Moody’s Investors Service.Asiana expects its ratings will be restored as its earnings will likely show a big improvement due to better relations with China and the 2018 Winter Olympics, it said in a text response to Bloomberg.
The yield on Asiana’s 1.5 year-bonds sold in October has surged 31 basis points to 6.531 percent since KIS lowered its rating, according to data compiled by the Korea Financial Investment Association. By comparison, the 4.188 percent notes due April 2019 of Korean Air Lines Co., which is rated BBB+ by KIS, yielded 4.391 percent.
Asiana has more than 500 billion won ($460 million) of straight bonds and commercial paper coming due next year, according to data from Korea Securities Depository. Airlines often need to raise funds to modernize their fleet even when borrowing costs are rising, and such investments don’t always boost their business, according to Shinhan’s Kim.
