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[Alpha Biz= Kim Jisun] Jeju Air’s stock price has fallen to its lowest level in history, heightening liquidity risks for Aekyung Group. Aekyung Group's holding company, AK Holdings, issued exchangeable bonds (EB) based on Jeju Air’s shares, and investors are now beginning to exercise their early redemption rights (put options). Over the past ten days, the amount demanded for early redemption has exceeded 20 billion KRW.

According to the financial investment industry on Sunday, the amount demanded for early redemption of AK Aekyung Holdings’ EBs had reached 22.5 billion KRW as of January 17. This represents about one-third of the remaining balance (78.7 billion KRW). The redemption request period, which began on January 5, will continue until February 4, so the total demand is expected to increase.

Exchangeable bonds allow bondholders to convert them into company shares or other securities. The EBs in question were issued on September 6, 2022, with a five-year term. AK Holdings set the exchange price at 15,050 KRW per share of Jeju Air. However, due to the Muan Air crash late last year, Jeju Air’s stock price dropped to the 7,000 KRW range. As of January 17, the stock price stood at 7,490 KRW, about half of the exchange price (15,050 KRW). If investors were to exchange their bonds for Jeju Air shares at this price, they would incur losses.

If all investors exercise their exchange rights, the company would need to return nearly 80 billion KRW in cash to investors by the early redemption date on March 6.

There are concerns that AK Holdings, with its BBB credit rating, may struggle to raise sufficient funds. Furthermore, AK Holdings’ stock collateral loans, secured by Jeju Air shares, are also facing the risk of forced liquidation.

Aekyung Group, including AK Holdings, holds 53.61% of Jeju Air’s shares. AK Holdings previously borrowed 162 billion KRW using Jeju Air shares as collateral. Some of these loan contracts are already below the required collateral maintenance ratio. For example, AK Holdings' housing collateral loan contract with KB Securities, secured by 9.67% of Jeju Air shares, requires a 180% collateral maintenance ratio. However, as of January 17, the calculated collateral ratio is less than 120%. If the stock price continues to decline, the lender may demand additional collateral or repayment of part of the loan.

 

 

 

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