Shares of Air China jumped 5.86 per cent to close at HK$5.42 yesterday after the world's largest airline by market value said it would issue 1.05 billion yuan (HK$1.29 billion) in new A shares to its state-owned parent company.
Trading in the stock had been suspended since April 20, pending an announcement about the share sale.
'The money it will raise from the new share issue is not a lot for a carrier but it still will help to relieve some debt stress,' said Geoffrey Cheng, an analyst with Bocom International.
Last year, Air China's interest bill for its bank loans was 1.8 billion yuan.
Cheng said shares had risen largely because they were playing catch-up with the stock prices of other airliners. 'During the week its trading was suspended, shares of other carriers had been rising,' he said.
He said airline shares had rallied because fuel prices in the first half of this month had been steadily easing.
The money raised from the controlling shareholder, China National Aviation Holding, will be used to reduce bank borrowings and as working capital.
The carrier said it would issue 188.64 million new A shares at 5.57 yuan each. China National Aviation's stake will increase to 40.85 per cent from 39.98 per cent on completion of the deal.
Meanwhile, Citigroup upgraded Air China to 'buy' from 'sell' on the outlook for international travel, setting a price target of HK$6.83, up from HK$5.61 previously. 'Overseas flight demand may rise because of a recovery in Japan travel following last year's earthquake, a relaxation of US visa rules and the London Olympic Games,' Citigroup said in a note.
Cheng said Japan flights had been recovering from a dramatic fall last year, and since the end of last month, the industry had entered the peak season. 'Statistics show that passenger traffic is increasing,' he said.
Air China reported first-quarter net profit plunged 85.7 per cent to 239 million yuan. It blamed higher fuel costs and smaller gains from its stake in Cathay Pacific Airways.