According to our translation of this Money Today article, Eastar Jet is to proceed with a paid-in capital increase before a possible sale to Daemyung Group.
Prior to the sale of a controlling stake in Eastar Jet, they plan to issue 20-30 billion won in new stock. According to sources, the company will proceed with the sale after improving cash flow with the capital increase.
According to sources within the aviation industry, Eastar Jet is currently targeting private equity funds for a paid-in capital increase of up to 30 billion won.
Eastar has recently been in talks with leisure business group, Daemyung, regarding a potential M&A. Eastar has denied rumors of the sale, however, industry insiders believe that Daemyung is eyeing Eastar and T’way Air as possible targets.
An unnamed source stated, “Eastar is requesting 120 billion won.” The source also said, “Daemyung feels the price is too expensive and is putting off the decision as with T’way Air.”
Daemyung has no reason to rush the sale because currently there are no other buyers in the field. Since the price will likely fall as time goes on, Daemyung plans to wait until early next year to decide on whether to purchase or if they will simply establish a new low cost airline.
Some commentators have said that Eastar Jet and T’way Air are actively attempting to negotiate with Daemyung because of the delay.
Eastar Jet is hoping for a capital increase as a fix for the company’s liquidity problems.
Eastar Jet’s sales were 110.5 billion won last year, however they also recorded an operating loss of 5.5 billion won. Compared to the 15.7 billion won operating loss in 2009, the 2010 operating loss was much lower, however they experienced an 8.4 billion won net loss due to financial expenses. At the end of last year, the company had 27.8 billion won in capital stock and a capital erosion rate of 77.5%
For the paid in capital method, third party placement is favored and it is predicted that a PE fund will participate in the deal. If Daemyung decides to acquire Eastar, the possibility of a private equity fund participating can’t be eliminated.
A representative from Eastar said “We haven’t heard anything about a sale. We are carrying out a paid-in capital increase to retain liquidity and it is likely to be concluded by the beginning of next year at the earliest”
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