China Eastern Airlines shares suspended ahead of capital injection
Trading in shares of debt-laden mainland carrier suspended ahead of fund injection
China Eastern Airlines shares were suspended from trading yesterday, pending a capital injection from its parent company to trim debt.
The details of the capital injection through a private share placement to China Eastern Air Holding are expected to be announced by next Wednesday.
China Eastern is the most indebted among its rivals on the mainland and the Shanghai-based carrier may need to strengthen its balance sheet through yet another round of government bailouts.
"This is a sign of the government's commitment to support airlines," a Credit Suisse report said yesterday.
The share placement was expected to be priced with reference to A-share prices, which are trading at a 74 per cent premium to H shares, it said.
China Eastern received two capital injections totalling 10 billion yuan (HK$12 billion) in 2009. Still, its net gearing - the percentage of net debt to net assets - amounted to 287 per cent as of the end of June, the highest among mainland carriers including China Southern Airlines and Air China.
The third round of capital injection for China Eastern comes after bailouts for China Southern in June and Air China in April. China Southern received 2 billion yuan while Air China got 1 billion yuan.
Analyst said the injection would be positive for China Eastern shares. Air China and China Southern, gained 5.86 per cent and 6.65 per cent, respectively, when the details of their injections were announced.
Mainland carriers have experienced a turbulent year as high jet fuel prices and yuan depreciation dented profits in the first half.
China Eastern Airlines saw its net profit plunge 65 per cent year on year to 806.9 million yuan in the first half. It blamed rising jet fuel costs, which rose 10 per cent, as the major reason for the big dip in profit.
The outlook for the second half will remain challenging on waning travel demand and the slowing Chinese economy.
Air China's net profit dropped 77 per cent year on year to 945 million yuan in the first six months while China Southern posted an 85 per cent fall in net profit to 424 million yuan.
China Eastern shares were trading at HK$2.32 before the suspension. The stock has lost 18 per cent so far this year.