China Eastern gets 7b yuan cash boost

PUBLISHED : Monday, 06 July, 2009, 12:00am
UPDATED : Monday, 06 July, 2009, 12:00am

China Eastern Airlines said yesterday it raised seven billion yuan (HK$7.94 billion) by selling new shares to its parent to strengthen its balance sheet amid a deteriorating operating environment.

China Eastern Air Holdings, the parent of the carrier, bought 1.43 billion A shares at an offer price of 3.87 yuan each and 1.43 billion H shares at one yuan each.

The airline raised 5.53 billion yuan from the A-share sale and 1.43 billion with the H-share issuance.

The transaction boosted the state-owned parent's holding in the Hong Kong-listed carrier to 74.65 per cent from 59.67 per cent.

The newly acquired shares will not be transferred to third parties within three years following the deal.

The airline said: 'The cash injection can help China Eastern Airlines power up its capital reserve, [ensuring] its continuous operating ability in order to go through the current difficulties.'

Meanwhile, China Eastern, the third-largest carrier on the mainland, is in negotiations with smaller rival Shanghai Airlines Corp for a possible merger.

Market sources believe the new China Eastern Corp that would emerge will seek either another round of government rescue money, or new funding from international investors or other strategic sources to help the carrier return to profitability.

The new airline was likely to reduce its debt ratio to as low as 85 per cent, which would require 20 billion yuan in fresh capital, market sources said.

The global airline industry has reported either huge losses or big falls in earnings because of weak demand and high fuel costs since the outbreak of the global financial crisis in September last year.

China Eastern Airlines reported a net loss of 13.9 billion yuan at the end of last year, blaming a rapid decline in demand on the domestic air transport market.

The airline maintained high gearing last year with a negative shareholders' equity of 11 billion yuan.

Trading of China Eastern shares has been suspended since June 8, when the stock was last traded at HK$1.74.

The airline is still in talks with Shanghai Airlines and media reports say a potential merger could take place in the form of a share swap at a ratio of 1.3 China Eastern A shares for each share of Shanghai Airlines.

The planned merger has received clearance from the State Council but is still subject to approval by regulators and the shareholders of both companies.

Stormy flight

Global airline sector has taken big losses on weak demand, high fuel costs

China Eastern reported a net loss for last year totalling, in yuan: 13.9b yuan