Victor Li throws hat in the ring to bail out ailing Air Canada

PUBLISHED : Sunday, 28 September, 2003, 12:00am
UPDATED : Sunday, 28 September, 2003, 12:00am

A Canadian company controlled by Hong Kong tycoon Victor Li Tzar-kuoi has been shortlisted to help rescue insolvent carrier Air Canada, which filed for bankruptcy protection on April 1.

Mr Li's unidentified company was selected as a 'qualified investor', along with New York-based buyout specialists Cerberus Capital Management LP, and invited to move to the final phase of a C$700 million (HK$4 billion) equity placement designed to help the troubled airline emerge from bankruptcy protection by the end of the year.

The proposals from both companies include provisions to increase the funding to C$1 billion through a sale to creditors of rights to buy new equity.

Air Canada management is expected to make a decision on the winning bid by the end of October. The airline received inquiries from more than a dozen high-profile investment groups, but several are believed to have been excluded because of Canadian laws limiting foreign investment in the airline to 25 per cent.

Analysts estimate the winning bid could get between 35 to 60 per cent of the company. Bond-holders and other creditors, with between C$8 billion and $10 billion in claims, could get between 40 and 65 per cent of the equity, according to a Bloomberg report. Shareholders are expected to get little or nothing.

A statement from Mr Li's office last night said none of the public companies controlled by the Li family would be involved in the investment. However, it also said that part of the investment may be made 'with or for the benefit' of the Li Ka-Shing Overseas Foundation, a charitable organisation chaired by Li Ka-shing.

A spokeswoman for Victor Li's office said she was unable to provide details of the bid during negotiations.

'We will only proceed if we are convinced we can put Air Canada on to a sound financial footing and help rebuild it into a leading global competitor in the aviation industry.

'The company is a vital component of the Canadian economy and provides an irreplaceable service for Canadian business and leisure travellers.'

Mr Li is a Canadian citizen and co-chairs Husky Energy, an Alberta-based oil company.

Since filing for bankruptcy protection with an estimated C$13 billion in debt and aircraft lease commitments, the airline has re-negotiated aircraft leases and received about $1.1 billion in annual labour concessions from its 40,000 employees. Up to 25 per cent of the airline's staff is expected to be laid off as the company strives to reduce its annual operating costs by C$2.1 billion.

Cerberus manages US$10 billion in capital and counts former Canadian prime minister Brian Mulroney among its advisers.