Hong Kong Government Led Bailout of Cathay Pacific

Matty-Sways

Hong Kong government bails out Cathay Pacific for slightly more than 6% stake and two observer seats.

Hong Kong’s government led a bailout for the city’s principal airline company Cathay Pacific Airways with a $5 billion funding package in exchange for a minority share, according to The Wall Street Journal.

Cathay announced on Tuesday that it would receive $2.5 billion from government-owned Aviation 2020 Ltd., which will have preference shares in the airline carrier.

Augustus Tang, the carrier’s chief executive, said that the company sought help from the government due to the severe impact made by the coronavirus pandemic, which caused its passenger number to go down by more than 99 percent since last year. In April, the airline had only 13,729 passengers, in comparison to 3.1 million in the same month last year.

The airline company’s Hong Kong-listed shares have decreased by 23 percent since the start of 2020.

Cathay will also raise $1.5 billion by selling new shares, and its biggest shareholders, Swire Pacific Ltd., Air China Ltd. and Qatar Airways Co., have agreed to subscribe to the rights issue.

The government could own 6.08 percent of Cathay’s common shares after its recapitalization, if Aviation 2020 also exercises warrants for $250 million in additional stocks.

“Cathay Pacific has explored available options and believes that a recapitalization is required to ensure it has sufficient liquidity to weather this current crisis,” the company said Tuesday. It added it had conducted costs-and-benefits analysis for other fundraising alternatives.

After the recapitalization, Swire will still be the airline’s controlling shareholder, though its stake will be reduced from 45 percent to 42.26 percent. Air China’s stake will go from 30 percent to 28.17 percent. Qatar’s stake will see a slight drop as well. The plan is waiting upon shareholder approval.

Although the government will not have voting rights in the company, two people will be appointed to attend Cathay’s board meetings as observers, which allows the government to have some influence in the company’s internal decisions.

The governmental presence in Cathay’s managerial board raised concerns during a time of political unrest in Hong Kong, as it will suffer from reduced autonomy and might be pressured to support pro-Beijing plans on tightening control of Hong Kong.

Hong Kong Financial Secretary Paul Chan said Tuesday that the government doesn’t intend to become a long-term shareholder of the company. “It is not our intention to interfere with the operations and management of Cathay,” he added.

See the full report here.

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