Korean Air seeks to sell 73-story skyscraper amid financial woes

Korean Air Lines. Co. is reaching out to overseas investors to gauge their interest in acquiring Wilshire Grand Center, a landmark building in Los Angeles fully owned by Hanjin International Corp., according to industry sources on Sept. 17.

At a Sept. 16 board meeting, Korean Air decided to provide $950 million (approx. 1.1 trillion won) in loans at 4.6% annual interest to Hanjin International, which runs Wilshire Grand Center, for debt repayment and operating expenses. Some $900 million will be used to repay debt and the remaining $50 million allocated to hotel operations.

The 73-story skyscraper that houses an InterContinental hotel, restaurants and office space was widely known as the lifelong ambition of the late Cho Yang-ho, former chairman of Korean Air, who said the skyscraper represented "the culmination of my dream" at the opening ceremony in 2017.

Despite its grand beginnings, expectations were hard crushed and the hotel became a financial burden for its parent company due to its piling deficits. The South Korean flag carrier is expected to kick off the sale process of Wilshire Grand when the hotel's business conditions improve.

At the end of this month, Korean Air plans to borrow $300 million from the Export-Import Bank of Korea, while coughing up its own money to the tune of $650 million to fund the fresh loan of $950 million to Hanjin International. It is understood that the airline’s creditors including the Korea Development Bank approved the $300 million loan on the basis of moving forward with the sale of Wilshire Grand.

The hotel industry has been hit hard by the coronavirus impact, making it more challenging for the hotel sale to go through anytime soon. However, given that the carrier is seeking potential buyers, the sale process may move swiftly if there is agreement on the price.

Korean Air said it will recover most of its loans over the next year. The airline is currently in negotiations with a US investor to sell part of its stake in Hanjin International. If successful, the stake sale and a bridge loan linked to the deal will generate an additional $300 million for Hanjin, according to Korean Air. Also, Hanjin will pay off $300 million through a mortgage loan.

In August, the cash-strapped carrier secured about 1 trillion won ($835 million) by selling its inflight duty free and meal service business to a domestic private equity firm. Yet, with the airline industry’s future looking bleak, the airline does not have the capacity to further finance the hotel. Korean Air's debt ratio stood at 1,099% as of the first half of this year.

Write to Man-su Choe and Sang-eun Lucia Lee at bebop@hankyung.com