HNA back-door listing plan for offshoot fails

PUBLISHED : Friday, 14 January, 2011, 12:00am
UPDATED : Friday, 14 January, 2011, 12:00am

HNA Group has failed in its plan to list its aircraft leasing arm after it was unable to conclude a deal to inject more than 70 aircraft into Hong Kong-listed toymaker Lung Cheong International Holdings as part of the back-door listing.

The plan lapsed on Wednesday as the two parties failed to proceed with a formal agreement, according to a filing to the Hong Kong stock exchange by Lung Cheong.

The deal was supposed to turn Lung Cheong into a listing vehicle of HNA's aircraft leasing business as the latter would get the controlling stake in the toy company in return for the asset injection.

Shares in Lung Cheong fell 12.7 per cent to 31 HK cents yesterday.

Aircraft leasing companies have been beefing up their operations as they jostle for a bigger market share on the back of a recovery in the airline industry and growing competition among lessors.

The letter of intent for the back-door listing plan, dated July 12, stated that the agreement would lapse if either HNA or Lung Cheong was not satisfied with the result of the due diligence on HNA's two aircraft leasing companies - Hong Kong Aviation Capital and Hong Kong International Aviation Leasing - or if a formal agreement could not be reached in six months, according to an e-mail from Lung Cheong's public relations agency.

The leasing companies were also required to meet a combined profit guarantee of at least HK$1.3 billion last year, failing which a compensation would be paid to Lung Cheong, according to the preliminary agreement.

Hong Kong Aviation, which acquired 68 aircraft from Allco Finance Group of Australia, planned to double its fleet size by buying US$3 billion to US$4 billion worth of aircraft in 12 to 18 months, chief executive Mathis Shinnick said last year.

It is not known whether the leasing firm is still sticking with its expansion plan or seeking other fund-raising resources. There was no response from Shinnick to a query from the South China Morning Post yesterday.

According to Liu Xiaoyong, the chairman of Hong Kong International Aviation, a much smaller lessor, the derailed listing plan would not affect its expansion plan. The company, which leases aircraft to Hong Kong Airlines and Hong Kong Express Airways, increased its fleet to 15 aircraft by acquiring three freighters and three corporate jets in the second half of last year.

HNA, meanwhile, is working on other listing avenues. It is in the process of relaunching the listing plan of Grand China Airlines on the Hong Kong exchange.

Grand China - the holding company of Hainan Airlines, China Xinhua Airlines, Shanxi Airlines and Changan Airlines - had planned to raise US$1 billion from an offering in the city but the plan was shelved because of the financial crisis in 2008.

Hong Kong Airlines, which is controlled by Hainan Airlines, is also mulling plans to raise HK$5 billion in Hong Kong this year.