Market insiders are paying attention to whether KAL Hotel Network will be put up for sale during cash-strapped flag carrier Korean Air Lines (KAL)’s ongoing efforts to secure liquidity.

South Korean buyout firm Hahn & Company (Hahn & Co) is conducting due diligence on KAL’s in-flight meals and sales business, according to sources on July 21. At the same time KAL is in exclusive talks with the buyout firm. The buyout firm and the country’s largest air carrier are expected to reach a stock purchase agreement as early as August.

KAL and Hahn & Co initially considered including KAL Hotel Network in the takeover deal but decided to exclude the company as the two parties couldn’t agree on the company’s valuation. KAL Hotel Network – a wholly-owned subsidiary of Hanjin KAL which is a holding company of the Hanjin Group – owns and operates three five-star hotels in Korea, including Grand Hyatt Incheon, Jeju KAL Hotel and Seogwipo KAL Hotel. The company recorded revenue of 110 billion won ($91.7 million), an operating loss of 3.3 billion and earnings before interest, tax, depreciation and amortization (EBITDA) of 13.4 billion won last year.

The investment banking industry is paying attention to whether the company will actually be put up for sale, especially as Hanjin Group has continuously mulled over the sale of KAL Hotel Network since February and a number of investors are seeking to acquire hotel properties. Hahn & Co also reportedly showed interest in KAL Hotel Network as part of the bolt-on strategy to strengthen its portfolios in the hospitality sector after its acquisition of Lahan Hotels.

“KAL Hotel Network’s (three hotels) are located where the large number of travelers pass through – two in Jeju Island and one near Incheon International Airport,” said an industry source. “As the company has long been mentioned as a potential target, the market is continuously paying attention to the company.”

The market’s interest in KAL Hotel Network is likely to continue as more tourists visit Jeju Island amid ongoing restrictions on overseas trips due to Covid-19. There are expectations that the company may be put up for sale if KAL fails to secure enough liquidity through its sale of the Songhyun-dong site and the in-flight meals and sales business.

KAL Hotel Network is also an asset related to the proxy fight between Hanjin Group chairman Cho Won-tae and his older sister Cho Hyun-ah. Market insiders said Cho Won-tae wants to remove the legacy of his sister through its planned sale of the in-flight meals and sales business and the possible sale of KAL Hotel Network. Cho Hyun-ah came back as president of KAL Hotel Network after the “nut rage” incident.

“KAL Hotel Network has several idle properties like Paradise Hotel on Jeju Island along with three five-star hotels,” said a private equity industry source. “Considering more tourists are expected to visit Jeju Island, it would be a worthwhile opportunity to acquire a hotel chain as a whole.”

KAL reportedly sought to sell KAL Hotel Network for approximately 500 billion won during its negotiations with Hahn & Co. It is said the valuation was calculated based on the sales comparison method, which compares recently sold similar local properties to the subject property.

However, many market insiders including Hahn & Co said the company has to be valued between 330 billion won to 440 billion won calculated on the revenue stream approach. “Even if KAL Hotel Network is put up for sale, narrowing the valuation gap will be the key to reach the deal,” a second source said. (Reporting by Ik-hwan Choi)