The Bank of Korea’s first interest-rate increase since 2011 on Thursday may add to the Seoul-based carrier’s woes by pushing up funding costs, according to Shinhan Investment Corp. The premium that investors demand to hold Asiana’s bonds jumped last week after its credit rating was cut to BBB-, one level above junk grade, by Korea Investors Service.
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 may help boost its Chinese business, concern remains about the health of its balance sheet: Asiana’s short-term debt made up 47.5 percent of its total at the end of September from 23.2 percent in 2013, providing less leeway for the firm to make repayments, according to KIS.
“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.
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