Hong Kong Airlines reveals plan for dual currency IPO worth US$500m
Hong Kong Airlines' proposed share sale, the city's first dual-currency deal, is set to test investor appetite for the competitive and risky sector.
Hong Kong Airlines' proposed share sale, the city's first dual-currency deal, is set to test investor appetite for the competitive and risky sector.
Industry views of the regional carrier's prospects are fairly evenly divided, given the operational challenges from premium airlines and short-haul budget carriers that offer competitive pricing to a growing number of travellers in the region.
"Admittedly, the appetite for airlines is low among investors, given the recent spate of disasters and concerns over excess capacity," K Ajith, a Singapore-based analyst at UOB Kay Hian Research, told the .
"There is substantial concentration risk for the regional carrier and it could be vulnerable to entrance by new players or budget airline startups in North Asia," he added.
Hong Kong Airlines, owned by HNA Group, is planning to raise US$500 million in a Hong Kong float in what could be the first dual-currency IPO. It plans to offer half of the retail tranche in yuan, with the rest in Hong Kong dollars.
HNA is the parent of Hainan Airlines and owns both of Hainan's airports, as well as a number of hotels and travel agencies.
In Hong Kong's listing market, the retail portion represents about 10 per cent of the entire deal, while institutional investors account for 90 per cent.
The two sets of shares will carry different stock codes, but holders will enjoy the same rights, according to people involved in the deal.
Despite a cloudy outlook for the industry, analysts agreed that the ample liquidity in the Asian market should help the floating of shares.
"Appetite for airline shares is not very strong but market sentiment could probably support [the float]," said Bocom International analyst Geoffrey Cheng. "A listing will enhance Hong Kong Airlines' balance sheet but not necessarily competitiveness, since Hong Kong's aviation business is highly competitive."
The company's gearing ratio, a metric of indebtedness, was well above 200 per cent over the past three years, according to its listing document.
Its outstanding debts amoun ted to HK$13.57 billion in May.
The offering is scheduled to be listed in the middle of the fourth quarter of the year, and the yuan portion of the IPO aims to tap the city's ample retail yuan deposits, according to people familiar with preparations for the listing.
Tough operating conditions are likely to endure, with Air China, the mainland's largest airline, posting a 55 per cent decline in first-half earnings despite a 7 per cent increase in passenger traffic.
Upon listing, the firm said it plans to raise anther 2.3 billion yuan in two renminbi-denominated notes for professional and institutional investors, according to the prospectus.
Gaming mogul Stanley Ho Hung-sun holds a 3.4 per cent stake before the share sale.
