Group shuffle may upset HK Air stock offering

PUBLISHED : Friday, 13 April, 2012, 12:00am
UPDATED : Friday, 13 April, 2012, 12:00am


Hong Kong Airlines may have to ground its HK$5 billion initial public offering because of a consolidation plan within the HNA Group, which is designed to clear the way for Hainan Airlines' eight billion yuan (HK$9.86 billion) A-share placement.

Shelving or cancelling Hong Kong Air's public share offering, which is scheduled for the third quarter, would put the brakes on the airline's expansion ambitions including bidding for the redevelopment and conversion of the Mariners' Club in Tsim Sha Tsui into a hotel, costing up to HK$4 billion.

The airline has appointed Goldman Sachs as its financial adviser for the share offering, the proceeds of which will be partly used to finance the expansion of its fleet. It plans to enlarge the fleet to 30 aircraft by acquiring six Airbus 330s and eight A320s this year before doubling it to 60 by 2015.

Company president Yang Jianhong said the offering might be suspended because of the group's restructuring plans.

'We will not go public if the group doesn't want us to do so,' Yang said. 'We will know exactly what the group plans to do next week after meeting HNA senior management in Singapore.'

Sources close to the listing plans said Hong Kong Air would need to seek legal advice on any potential conflict between its listing plan and a non-compete pledge of its controlling shareholders - HNA and Grand China Airlines.

Hainan Air said yesterday it would acquire all the aviation-related assets held by controlling shareholders Grand China and HNA, and they had promised to avoid competing with units in the group.

Hainan Air will hold as much as 39 per cent of Hong Kong Air if the consolidation goes ahead. It now owns 19 per cent of Hong Kong Air, while HNA and Grand China control a combined 20 per cent stake.

Meanwhile, debt-laden Hainan Air plans to raise not more than eight billion yuan through a private share placement on the Shanghai exchange by February 15 next year to repay bank loans.

Hainan Air said it would acquire HNA's interests in Hong Kong Air, Tianjin Airlines, Western Airlines and Beijing Capital Airlines within 36 months after the placement. It would also acquire all the aviation-related assets and business from Grand China within five years.

The acquisitions were needed for legal and regulatory reasons, it said.

Hainan Air has debt of 62.5 billion yuan, compared with assets of 77 billion yuan. It hopes to trim its interest costs by lowering its debt ratio to 66.5 per cent from 81.3 per cent after the placement.

The airline's interest expenses rose to 2.2 billion yuan in 2010 from 1.9 billion yuan in 2008 after it used bank loans to fund its expansion.