Korean Air Buying Large Stake in Oil Firm

By Seo Jee-yeon

Korean Air Lines Co., the nation's flagship carrier, is expected to sign a deal to buy treasury shares of S-Oil Corp., company officials said. The deal would make the airline the second-largest shareholder of the nation's third-largest oil refiner.

Korean Air and its affiliate Hanjin Shipping Co. will jointly buy treasury shares of S-Oil equal to 28.4 percent of the outstanding stock of the oil refiner for between 2 trillion won and 3 trillion won, the companies said.

``Most terms, with the exception of the price, are settled. Whether we will buy the stake will be decided within the month,'' Korean Air President Lee Jong-hee said.

He said Korean Air is the preferred bidder for S-Oil and it has been engaged in exclusive talks with the oil refiner. ``There are some differences on the price, but we expect to seal the talks this month,'' he said.

Korean Air and Hanjin Shipping have sought a major stake in S-Oil to secure a stable oil supply source amid rising oil prices.

S-Oil has provided Korean Air with 10 percent of the total oil the carrier consumes a year.

S-Oil has looked for a strategic partner to buy its 31.98 million treasury shares to raise funds for capacity expansion. Saudi Arabian Oil Co. is the largest stakeholder of S-Oil with a 35-percent stake.

Korean Air and Lotte Group have competed for a stake in S-Oil to gain a foothold in the oil refining industry. Lotte recently dropped its bid because of high costs.

Korean Air spent 2.5 trillion won on fuel last year as international oil prices soared. The acquisition of a major stake in S-Oil is expected to help cut fuel costs. Hanjin spent nearly 1 trillion won to buy bunker C oil last year.

The S-Oil stake is expected to set the groundwork for the shipping company to secure rights to transport oil between South Korea and Middle Eastern nations.

Korean Air officials said that the company would take part in the management of S-Oil.

If the company succeeds in buying S-Oil treasury shares, it and Aramco will jointly form and run S-Oil's board of directors, a Korean Air official said.