Oasis boss used stock as security for US$10m loan

PUBLISHED : Saturday, 12 April, 2008, 12:00am
UPDATED : Saturday, 12 April, 2008, 12:00am

Cash was needed to meet airline's urgent needs, says chairman

The chairman of Oasis Hong Kong Airlines has admitted he put up his shares in the company to secure a US$10 million loan in a desperate attempt to keep the carrier afloat.

'The only purpose for the loan was to meet the urgent cash needs of the airline. The entire US$10 million was put into the airline by the loan company directly,' the Reverend Raymond Lee Cho-min said by email in response to questions filed by the South China Morning Post.

Mr Lee, who controls about 60 per cent of the airline, denied the loan was for his personal use.

Property developer Cheung Kong (Holdings), controlled by Li Ka-shing, said on Thursday it had provided a loan 'to persons connected to Oasis Hong Kong Airlines'. Cheung Kong is neither a shareholder nor creditor of Oasis.

Pledging shares to secure a loan that has not been repaid means the shares become the assets of the creditor. If the shares do not yield the loan amount or become worthless, the creditor will usually require other personal guarantees. A creditor can also sue to recover the money.

Mr Lee is also chairman of Oasis Development Enterprises. The group of property development and management companies boasts a portfolio of commercial and residential buildings in Boston and a property in Las Vegas that is leased to Wells Fargo Bank, the fifth largest bank in the United States.

In an open letter issued on Wednesday, Mr Lee and his wife, Priscilla, said the original business plan required only US$25 million to achieve profitability. However, competition forced Oasis to buy rather than rent aircraft while escalating fuel prices, which have hit the whole industry, also had a severe impact.

The letter stated that 'as a newly started airline, we have found it next to impossible to obtain a credit facility from financial institutions to carry out fuel-hedging programmes'.

Oasis, the world's first budget long-haul airline, collapsed on Wednesday. Reports said losses had reached HK$1 billion since the airline launched in October 2006.

Although details of the airline's cash-flow needs are unknown, due diligence conducted by HNA Group, the parent company of Hainan Airlines, revealed as much as US$2 million a week was needed to meet aircraft leasing and crew costs.

HNA Group had intended to invest in Oasis but backed down after details of Mr Lee's pledged shares came to light.

It was unclear why Mr Lee resorted to taking out a loan himself to cover the airline's operating costs but it suggests Oasis was not able to go to the market for financing. A banking source said potential investors would be concerned by this 'red flag' and look at the reasons why there was difficulty in securing financing.

It was also possible that the cost of taking out a loan might be cheaper than going to the market for financing, the source said.

A liquidation hearing for Oasis will take place on June 11, when the provisional liquidator, accounting firm KPMG, is expected to assess the airline's financial situation. KPMG will also determine whether the airline should be formally liquidated and deal with claims from creditors.