South Korea's Asiana fails to get accounting sign-off; shares suspended

SEOUL (Reuters) - South Korea’s second-biggest carrier Asiana Airlines Inc said on Friday an independent auditor has not signed off its 2018 financial statements due to a lack of information, rendering its stock at risk of being added to a watch list.

FILE PHOTO: Aircraft flies over the head office of Asiana Airlines in Seoul, July 7, 2013. REUTERS/Kim Hong-Ji/File Photo

The refusal also meant the auditor for Asiana’s biggest shareholder, Kumho Industrial Co Ltd, was only able to provide a qualified opinion on the parent’s 2018 accounting, leaving the logistics conglomerate in a cloud of uncertainty.

The Korea Stock Exchange suspended trading of shares in the pair from Friday and asked Asiana to clarify market rumors about its auditor’s review.

Shares of maintenance affiliate Asiana IDT Inc subsequently fell as much as 12.2 percent in a flat market, and budget affiliate Air Busan Co Ltd lost 2.6 percent.

In a qualified opinion - or statement addressing an incomplete audit - Asiana’s auditor Samil PwC said it had not been provided with enough information to evaluate the airline’s provisional debt related to maintenance of leased aircraft, as well as the fair value of stakes in affiliates bought in 2018.

“As a result, we were not able to decide whether adjustments would need to be made to certain financial accounts,” it said.

Asiana Airlines and Kumho Industrial in separate statements said they would call on auditors to reach a swift resolution.

The bourse said trading will resume on Tuesday. If the pair have not received auditor approval by then, their stocks will be added to a watch list. That would likely deter investment from large institutional investors and benchmark-tracking funds.

“If the auditors issue further qualified opinions next year, the companies’ stocks could face possible delisting, and trading in the stocks would be halted while the bourse conducts reviews,” a stock exchange official told Reuters.

The qualified opinion comes as Asiana sells assets to improve cash flow and reduce debt from aircraft purchases, as it battles rising fuel costs and competition with budget carriers.

Asiana, a member of the STAR alliance that includes Air Canada and Air China Ltd, sold its stake in CJ Logistics Corp last year, while its parent sold its headquarters in central Seoul.

“We can’t rule out the possibility of liquidity risks growing, as this undermines the credibility of its accounting information, and therefore its access to the capital market,” Moody’s Investor Service’s South Korean unit wrote in a note, saying it will consider lowering its rating of Asiana’s credit.

Asiana on Friday said it swung to a net loss of 106.6 billion won ($94.39 million) last year, with debt equivalent to over seven times its equity.

Reporting by Heekyong Yang and Hayoung Choi; Additional reporting by Yuna Park and Hyunjoo Jin; Editing by Christopher Cushing and Miyoung Kim