China National Aviation Corp (CNAC) has placed as many as 90 million shares in Cathay Pacific Airways, raising up to $1.25 billion to help cover the $1.97 billion cost of buying a controlling stake in Hong Kong Dragon Airlines (Dragonair). Sources yesterday confirmed Beijing-backed CNAC, which only 10 days ago took a 35.86 per cent shareholding in Dragonair, placed 'a large part' of its 4.18 per cent stake in Cathay at $13.95 a share about 4.30 pm. They said the buyers were a mix of retail clients and institutional investors - both domestic and international. The price represents a discount of 2.78 per cent to yesterday's closing price of $14.35, which was a 50-cent rise over Friday's close of $13.85. BZW Asia acted as lead underwriter of the sale, receiving assistance from Tai Fook Securities and other brokerages, company officials said. The exact number of shares placed was unclear, but it was thought to be 90 million, or 2.61 per cent of the airline. The placement of that amount would leave CNAC with 1.57 per cent of the territory's de facto flag carrier. Sources said the placement was due to have been completed last Wednesday, but a delay was forced following a South China Morning Post report that it was imminent, causing a 5.51 per cent plunge in Cathay's share price. European institutional investors were originally due to buy the shares at $14.10 each, representing a discount of 2.75 per cent to last Tuesday's close of $14.50. Officials from neither BZW Asia nor CNAC, which is controlled by the regulatory Civil Aviation Administration of China, could be reached for comment yesterday. Cathay spokesman Kwan Chuk-fai said the airline had no official comment, as CNAC was under no obligation to inform the airline of a placement unless it amounted to 5 per cent or more of the entire issued share capital. CNAC's purchase last week of the Dragonair shares from rival mainland-backed conglomerate Citic Pacific, as well as Cathay and its parent Swire Pacific, was part of a major shake-up in the ownership of the territory's airlines. Under a landmark agreement first announced on April 29, CNAC agreed to halt year-old plans to set up a rival carrier and pledged to retain 'a shareholding in the company [Cathay] as a long-term investment'. The Dragonair purchase was preceded by last Monday's extraordinary general meeting of Cathay shareholders, which saw unanimous approval of the issue of 572.9 million new shares to Citic for $6.3 billion. Completion of the transaction increased Citic's stake in Cathay to 25 per cent from 10 per cent and reduced Swire's to 43.86 per cent from 52.63 per cent. Analysts said Cathay's share price was likely to be hurt in trading today as the sale offered investors further evidence that Dragonair and Cathay would compete 'head to head'. It also indicated 'fair value' of Cathay.
