Cathay Pacific shares fall below pre-bailout level as investors shun merits of US$5 billion rescue plan
- Shares soared nearly 19 per cent at the open, but finished with 1 per cent decline
- Government bailout leads to increase in number of shares, worrying investors, while outlook for international route resumption is uncertain, analysts say
Shares on Wednesday declined 1 per cent as investors weighed whether the rescue package will be enough given uncertainties about Cathay’s recovery of international routes, especially to mainland Chinese cities.
The stock has fallen more than 20 per cent this year, after it and the global airline industry saw travel plummet amid lockdowns and government restrictions aimed at stopping the spread of the coronavirus.
“Cathay now has little problem to survive because of the bailout, but its shareholders were forced to buy more shares. Individual investors now find that their costs of increasing shareholding in the company increases,” said Qi Qi, an associate professor at the Guangzhou Civil Aviation College.
His comments came as Daiwa Capital Markets and Jefferies lowered their target price for Cathay, by 26.2 per cent to HK$6.5 and by 16.2 per cent to HK$8.3, respectively.
“Due to the huge [share] dilution impact, we expect its share price to come under pressure,” said Daiwa Capital analyst Kelvin Lau. Daiwa downgraded its rating for Cathay to “sell” from “hold”.
Under the recapitalisation plan unveiled on Tuesday, the government will provide a lifeline of HK$27.3 billion, representing 1.5 times the company’s market capitalisation, and take a 6.08 per cent stake.