Government forks up nearly HK$30b for Cathay Pacific, while carrier burns up HK$3b a month

Local | 9 Jun 2020 1:15 pm

Cathay Pacific Airways has proposed a HK$38.9 billion recapitalization involving an issue of preference shares and warrants, a rights issue and a bridge loan facility, as it burns up cash at a rate of HK$2.5 billion to HK$3 billion a month since February this year.

The Hong Kong government is taking the lead in the recapitalisation, committing HK$29.25 billion.  It will also take a 6.08 percent interest in the Swire Pacific-owned  airline.

The government will also have the right to appoint two  observers to the board and have access to management and information.

In an announcement today, the airline's largest shareholder, Swire Pacific, proposed  issuing preference shares to the government amounting to HK$19.5 billion, warrants of HK$1.95 billion, and a HK$7.8 billion bridge loan to be made available by Aviation 2020, a new, limited company incorporated in Hong Kong and wholly owned by the Financial Secretary. 

Swire Pacific, which holds 45 percent of Cathay Pacific, said it supports the proposed recapitalization of the airline.

Cathay Pacific believes that a recapitalization is needed to ensure it has sufficient liquidity to weather the current crisis, Swire Pacific said.

Swire Pacific will subscribe to HK$5.3 billion of Cathay Pacific shares under the rights issue at HK$4.68 per share, the conglomerate said. There will be seven Cathay Pacific rights shares for every 11 existing Cathay Pacific shares. This rights shares subscription will be funded with Swire Pacific internal financial resources.

Cathay Pacific said it will continue to explore opportunities to improve its capital structure. If suitable market conditions arise, Cathay Pacific may further access the equity and debt capital markets to strengthen its balance sheet, the airline said.

The drop in passenger revenue to just 1 percent of the levels of previous years, has meant that Cathay Pacific has been losing cash at a rate of HK$2.5 billion to HK$3 billion per month since February 2020, the airline said.

After the recapitalization, Swire Pacific will remain the largest shareholder with a 42.26 percent interest. Air China will hold 28.17 percent, Qatar Airways 9.38 percent, while the Hong Kong government entity, Aviation 2020, will hold 6.08 percent.

The Cathay Pacific Group includes Cathay Pacific and Cathay Dragon airlines, Air Hong Kong express air cargo services in Asia, as well as the budget carier HK Express operating flights in Asia. The airline services segment offers catering, cargo terminal operations, ground handling, and commercial laundry operations.

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