Korean Air Lines (003490.KS), which is currently undergoing integration procedures with Asiana Airlines, has secured more than 1 trillion won in orders during a bond demand forecast aimed at raising 200 billion won. The result is being interpreted as a reflection of the airline's enhanced credit appeal, after all three major credit rating agencies recently raised their outlooks on Korean Air to "positive."
According to investment banking (IB) industry sources on Sunday, Korean Air launched a demand forecast targeting institutional investors to raise 200 billion won in corporate bonds. Institutions are reported to have placed bets totaling 1.114 trillion won. Specifically, 571 billion won flowed in for the 80 billion won two-year tranche, while 543 billion won was committed to the 120 billion won three-year tranche.
With the influx of large orders, the bonds are expected to be issued at rates below those typically traded in the market. Ahead of the demand forecast, Korean Air had set a target rate band of -30 to +30 basis points (1bp = 0.01 percentage point) over its individual private valuation yield (the rate assigned to a company by private bond rating agencies). The demand forecast showed that the two-year and three-year tranches were filled at -15bp and -7bp, respectively, against private valuations for the same maturities.
The strong demand is seen as a result of credit rating agencies successively raising Korean Air's credit rating outlook from "A0, stable" to "A0, positive." A "positive" outlook implies that the credit rating could be lifted by one notch within the next year. Korea Ratings, Korea Investors Service, and NICE Investors Service all forecast that, despite external uncertainties, synergies from the merger with Asiana Airlines would translate into solid business competitiveness.
Korean Air plans to use the proceeds from this public bond issuance to repay debt. The funds will be used to address an 84 billion won public bond maturity on the 25th of this month, along with approximately 194.9 billion won in aircraft lease payments. The bond issuance is being managed by Shinhan Securities, KB Securities, Korea Investment & Securities, Kiwoom Securities, NH Investment & Securities, Daishin Securities, and Woori Investment & Securities.
