Hainan Airlines Co., controlled by the investment arm of China's Hainan province government, plans to raise as much as eight billion yuan ($1.2 billion, Dh4.4 billion) in a private placement of shares partly to help pay bank loans.
The carrier will sell as many as 1.24 billion new shares at no less than 6.42 yuan apiece, it said in a filing to the Shanghai Stock Exchange yesterday. The target is 13 per cent below its 7.35 yuan closing price on July 8. Trading in the shares has been suspended since yesterday, according to a company statement.
Hainan Airlines is expanding routes and adding planes amid rising competition from high-speed railroads and as travel demand in China surges. The carrier will use six billion yuan of proceeds to pay down debt as rising borrowing costs have had "an adverse effect" on operations, the airline said.
"Hainan Air has huge funding pressure because it can't get a capital injection from the central government," said Li Lei, a Beijing-based analyst with China Securities Co. "The placement can reduce its debt and support future plane purchases."
Larger rival Air China Ltd. raised about 6.5 billion yuan in November last year in a share sale to investors including its government-controlled parent China National Aviation Holding Co.
China Southern Airlines Co. got about ten billion yuan in a similar state-backed share sale last year, while China Eastern Airlines Corp. raised 12 billion yuan in 2009.
Hainan Airlines has a debt to asset ratio of 70 per cent, the highest among China's listed airlines, according to Bloomberg data. Air China, the nation's biggest carrier, has a ratio of 54 per cent, based on its latest filing. "The company's financial expenses have increased rapidly," Hainan Airlines said.
The carrier is a unit of Hainan province-controlled HNA Group Co., China's fourth-largest aviation company, which operates carriers, airports, hotels and department stores.
No more than 10 investors or individuals will be selected to buy the shares and the company's controlling shareholder and affiliates are excluded from the sale, the company said in the statement.
Controlling shareholder Grand China Air Co.'s stake in the carrier will be diluted to 33.96 per cent from 44.22 per cent, should the maximum 1.24 billion new shares be sold, Hainan Air said in the statement.
The carrier said on June 24 it plans to sell as much as two billion yuan of three-year bonds overseas to support Hainan Airlines business outside China. It also issued a five billion yuan bond in May this year.
HNA's unit Hong Kong Airlines Ltd. plans to sell a stake to private-equity investors ahead of an initial public offering next year that may raise as much as $1 billion, said Yang Jianhong, president of the unit.
From / Gulf News