Cathay Pacific plans US$5-B recapitalization backed by HK government

Published June 9, 2020, 12:00 AM

by manilabulletin_admin

By Bloomberg

Cathay Pacific Airways Ltd. outlined a plan to raise HK$39 billion ($5 billion) from the Hong Kong government and shareholders after months of warnings about the frailty of its business because of Covid-19 travel restrictions.

Cathay Pacific Airways logo (Photo courtesy of
Cathay Pacific Airways logo (Photo courtesy of

The rights issue proposal, reported earlier Tuesday by Bloomberg News, is on the basis of seven rights shares for every 11 existing shares held and would raise about HK$11.7 billion, Cathay said in a statement to the Hong Kong stock exchange on Tuesday. The preference shares will be sold to the government for HK$19.5 billion along with HK$1.95 billion of warrants, subject to adjustment.

Aviation 2020 Ltd., a Hong Kong government-connected entity, is extending a HK$7.8 billion bridge loan. The government will own 6.08% of Cathay through Aviation 2020 after the deal.

“Cathay Pacific has explored available options and believes that a recapitalisation is required to ensure it has sufficient liquidity to weather this current crisis,” the airline said in the statement.

Cathay and main shareholders Swire Pacific Ltd. and Air China Ltd. suspended trading Tuesday, pending the announcement. Hong Kong Financial Secretary Paul Chan will hold a news conference at 3 p.m. Hong Kong time on the investment “to uphold Hong Kong’s status as an international hub,” the government said. Cathay plans a press conference at 4 p.m.

Cathay and Swire Pacific applied to resume trading Wednesday. Shares are expected to fall, said Kelvin Lau, an analyst at Daiwa Capital Markets Hong Kong Ltd.

“The rights issue will have a dilution effect and that’s going to be reflected in share prices when trading resumes,” Lau said.

Cathay also will implement another round of executive pay cuts and a second voluntary leave program for employees. The airline is losing as much as HK$3 billion a month.

“In the longer term, all aspects of the Cathay Pacific Group’s business model will be re-evaluated,” the company said.

Airlines around the world have been searching for funds after the coronavirus slammed their operations. In Asia, Singapore Airlines Ltd. raised S$8.8 billion ($6.3 billion) in a rights issue last week and has since secured new credit lines and loans, while South Korean authorities are pumping another 1 trillion won ($834 million) into Korean Air Lines Co., Yonhap News said.

Major U.S. carriers American Airlines Group Inc., Delta Air Lines Inc. and United Airlines Holdings Inc. are among those to have lined up billions of dollars in federal aid to help them through the crisis, which has led to a dramatic slump in passengers and routes flown.

In Europe, Deutsche Lufthansa AG has secured about $10 billion in state support. Others including Avianca Holdings SA and Latam Airlines Group SA have filed for bankruptcy, while administrators are looking at bidders for Virgin Australia Holdings Ltd. after it collapsed in April.

The International Air Transport Association last month said the global airline industry’s debt could swell by 28% to $550 billion this year, which includes $123 billion in financial aid from governments. The industry group expects airlines to burn through about $60 billion of cash in the second quarter alone.

The pandemic has hit Cathay particularly hard because — like Singapore Airlines — it has no domestic market to fall back on, whereas carriers in China are rebuilding capacity on flights within the mainland.
Passenger revenue is about 1% of prior year levels, Cathay said.

Even before the pandemic, Cathay was under enormous financial and political strains as it found itself caught up in the Hong Kong anti-government protests, which affected traffic numbers and led to the exit of the company’s former chief executive officer. Cathay was criticized by China, protesters and its own workers for its response to the demonstrations.