Exclusive | Citic Group, Wuxi company and Henry Tang’s family in talks to buy Hong Kong Airlines, putting an end to boardroom tussle

A consortium of mainland Chinese and Hong Kong investors are bidding to buy Hong Kong Airlines
The purchase, which is still under negotiations, will involve at least 2 billion yuan of fresh capital into the carrier, and the investors assuming part of the airline’s debt, sources said

Hong Kong Airlines

Enoch Yiu

Published: 12:19pm, 12 Jul 2019

Why you can trust SCMP

A consortium of mainland Chinese and Hong Kong investors is bidding to buy Hong Kong Airlines, offering an end to the messy boardroom tussle at the city’s third-largest carrier and a financial lifeline to the debt workout by one of China’s biggest asset buyers.

The investors comprise the family of Hong Kong’s former chief secretary Henry Tang Ying-yen, include a unit of Citic Group, and Wuxi Communications Industry Group, the Chinese owner of the Dornier Seawings amphibious aircraft maker, according to several sources familiar with the deal. The new investors will inject at least 2 billion yuan (US$291 million) of capital and assume part of the carrier’s debt, the sources said, declining to give their names for speaking on a deal still under deliberation.

The entry of new investors would put an end to the legal tussle that has engulfed the troubled airline for months, as rival camps of directors jostled for control of the carrier that has a fleet of 28 aircraft. An August 22 hearing for the case has been withdrawn, as the entry of a new controlling shareholder makes the tussle moot.

The takeover adds to the US$40 billion of assets that Hainan-based HNA – China’s most voracious buyer of global assets from hotels and golf courses to banks and land parcels as recently as in 2017 – had sold in the past 18 months to repay debt. China Development Bank, which is in charge of HNA’s debt impairment programme, has given its nod to the sale, the sources said.

“There are still a lot of enticing points about the carrier, from its [route] network to its fleet,” said You Luya, transport analyst at Bocom International. “Any investor looking to get involved with Hong Kong Airlines would need to be in it for the long haul. We don’t expect the carrier to witness a massive turnaround in the next two to three years even with investor influx given capacity restrictions at Hong Kong International Airport and at key destinations and Cathay Pacific’s aggressive expansion.”

Hong Kong Airlines has been under intense scrutiny because of its boardroom drama and financial problems, following an exodus of directors and top managers late last year. It trimmed its fleet of 38 aircraft to 28 this year, and reduced its long-haul routes to stem losses.

Details of Hong Kong Airlines’ first A350-900 aircraft. Photo: Airbus.

The airline counts three major shareholders that own 90 per cent of the carrier between them: Frontier Investment Partner owns 34 per cent, HNA has 29 per cent, former director Zhong Guosong owns 27 per cent, with the balance 10 per cent held by minority shareholders.

HNA in March sold its stake in Hong Kong’s sole low-cost carrier HK Express to Cathay Pacific for HK$4.98 billion.

In anticipation of the sale of Hong Kong Airlines, the carrier’s three existing major shareholders – HNA, Frontier and Zhong – agreed to withdraw their legal tussle to consider the offer.

“The court cases derived from the shareholders’ dispute are dismissed and the restraint orders against Hong Kong Airlines directors are discharged,” a spokeswoman for Hong Kong Airlines said in a statement today. “Hong Kong Airlines is here to stay and committed to sustaining our long-term growth. We are always open to strong strategic investors.”

Hong Kong’s former Chief Secretary Henry Tang. Photo: Nora Tam

Government approval is needed for any change of shareholding that exceeds 10 per cent in an airline, under Hong Kong law.

Tang, 66, was Hong Kong’s financial secretary from 2003 to 2007, before serving as chief secretary from 2007 to 2012. He was a contender for the city’s top job as chief executive in 2012, losing the position to Leung Chun-ying. Tang is the eldest son of the late Tang Hsiang-chien, a textile tycoon born in Wuxi, who relocated the family’s knitting and yarn businesses to Hong Kong in the 1950s, and built it into an estimated fortune of US$1.6 billion.

The Tang family owns Peninsula Knitters and Soco Textiles, while a separate business making printed circuit boards (PCBs) was sold in 2009 to California-based TTM Technologies, where Tom Tang Chung-yan – the youngest of the Tang siblings – still serves as director. Henry Tang owned 1.018 million TTM shares as of August 13, 2018, according to exchange filings.

Tang, who is now the president of the Hong Kong-Jiangsu Community Organisations, declined to comment in a statement.

China's state-run Citic Group is one of the world’s top owners of foreign assets. Photo: Handout

The investment by Citic – China’s largest state-owned conglomerate, with businesses from banking to satellites – marks its return to aviation in Hong Kong. Citic’s Hong Kong unit previously owned stakes in Cathay Pacific and Dragon Airlines, the city’s two biggest carriers, before selling its stake in Dragon in 2006, and shedding its Cathay Pacific stake to Air China and Swire Pacific in 2009.

A spokesman at Citic’s Hong Kong unit declined to comment, saying the company does not respond to market rumours.

The deal gives Wuxi Communications a toehold in aviation. The company, owned and managed by the city authorities of Wuxi in Jiangsu, mostly operates buses, passenger coaches and builds land transport infrastructure. It bought control of Dornier Seawings in 2013.

Additional reporting by Danny Lee

This article appeared in the South China Morning Post print edition as: Consortium in talks to buy Hong Kong AirlinesConsortium in talks to buy HK Airlines

Post