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HNA Group

HNA’s Hainan Airlines sells 40 per cent stake in unprofitable local carrier to Urumqi government

  • The sale is part of a major asset-restructuring programme involving Hainan Airlines and its embattled parent HNA Group
  • Hainan Airlines said the transaction would be of long-term benefit to the carrier based in Urumqi, capital of the Xinjiang autonomous region
PUBLISHED : Wednesday, 21 November, 2018, 7:51pm
UPDATED : Wednesday, 21 November, 2018, 10:48pm

Hainan Airlines Holding, the flagship aviation unit of Chinese conglomerate HNA Group, is to sell a big chunk of its stake in an unprofitable local carrier to the government of Urumqi, in northwest China.

The mainland’s fourth biggest airline has agreed to sell 40 per cent of its shares in Urumqi Air to a financing vehicle controlled by the city’s government, according to an exchange filing on Wednesday.

The agreement will boost the Urumqi government’s stake in the local carrier to 70 per cent, while Hainan Airlines holds the remaining 30 per cent.

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Hainan Airlines said the transaction would be of long-term benefit to the local carrier based in Urumqi, the capital of the Xinjiang autonomous region.

The sale is part of a major asset-restructuring programme involving Hainan Airlines and its embattled parent HNA Group, which was until recently one of the mainland’s most aggressive overseas buyers.

In May, the Hainan-based airline, in which US billionaire George Soros was among early investors, said control of the Shanghai-listed company could change hands as the parent revamped its assets.

Hainan Airlines did not reveal the price for the stake, but said it could be paid for by cash, tangible assets or equities.

The transaction is subject to shareholders’ and regulator’s approval.

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Hainan Airlines’ A shares gained 1.47 per cent to 2.07 yuan (30 US cents) on Wednesday.

The company said it would retain its management rights in Urumqi Air after the transaction.

“Since Urumqi Air is still unprofitable, it is reasonable for Hainan Airlines to sell down its stake in the local carrier,” said Ivan Li, an asset manager with Loyal Wealth Management. “As it continues to manage the airline, Hainan Airlines will be able to better use the routes of Urumqi Air to create a synergy with other routes it operates.”

Urumqi Air was established in 2013 by Hainan Airlines and the local government with registered capital of 3 billion yuan.

It posted a loss of 50 million yuan in the first half of this year, according to an interim report. The carrier operates routes that connect 33 cities in mainland China.

HNA had been one of China’s most active buyers of global assets in recent years, having acquired stakes in companies including hotel group Hilton Worldwide Holdings, airline catering giant Gategroup, aviation servicing firm Swissport and Deutsche Bank.

But the debt-fuelled international buying spree hit a blip last year when HNA came under pressure to repay loans after some banks froze unused credit lines to its units after they missed payments.

Since then, the conglomerate has been offloading assets to meet its debt obligations and was reported to be planning asset sales worth more than 100 billion yuan.

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