The Hong Kong government has saved Cathay Pacific from falling to the mainland owned Air China via a multi-billion dollar bailout.
The government revealed a $HK29 billion ($US3.8 billion) bailout of Cathay yesterday after the shares of both Air China and Cathay were suspended on the local stock exchange amid talk of a mainland cash injection.
Last month, Cathay Pacific revealed a $HK$4.5 billion loss at its airlines, which include its regional business Cathay Dragon, during the January to April period and warned of a “very bleak” outlook.
That was part of a larger HK$39 billion (US$5 billion) recapitalisation consisting mostly of new shares. The government gains a 6.1%L shareholding in the struggling airline.
That didn’t happen from a large shareholder in the shape of Air China. It seems both the mainland and Hong Kong governments did not want to see such a high profile local business grabbed at such a sensitive time with security laws being changed to give Beijing greater control over the region.
Cathay’s $HK39 billion ($US5 billion) recapitalisation is mostly in the form of new equity and is led by the Hong Kong government. Its future ownership structure will not significantly change as the Hong Kong government gains a 6.1% stake.
Existing shareholders retain balance but with marginal dilution. Swire Pacific’s holding in Cathay falls from 45% to 42.3%, Air China from 29.9% to 28.2%, and Qatar Airways from 9.9% to 9.4%.
The Hong Kong government will buy new shares and have warrants amounting to $HK21.5 billion ($US2.8 billion), and will also provide a $HK7.8 billion ($US1 billion) loan.
The government bailout of Cathay is another in the growing list of major airlines to be saved by governments. Air New Zealand was bailed out by the NZ government two months ago, Lufthansa was saved last week by the German Government.
Singapore Airlines was bailed out by the island state’s main investment fund, Temasek, as well as several other funds and the country’s largest bank which is controlled by Temasek. That gave Temasekf a controlling 31% shareholding in Singapore.
As well Latam, the Chilean-Brazilian airline has collapsed, as had Virgin Australia.
