China Eastern and China Southern Injected RMB 3 Billion Respectively
December 12,2008
by CSC staff, Shanghai
As one of the government’s policies to bailout the aviation industry, China Eastern Airlines (China Eastern) and China Southern Airlines (China Southern) will get capital injection
China Eastern is going to issue 652.18 million A-shares to its parent company China Eastern Group at 3.6 yuan per share and issue the same amount of H-shares to China Eastern International Holding (Hong Kong) Co, Ltd, wholly owned subsidiary of China Eastern Group, at 1.14 HKD per share. In this way China Eastern will raise about 3 billion yuan as the company’s working capital.
China Eastern Group, with its RMB 3 billion capital recently gained from the government, will acquire China Eastern’s A-shares. The issuing price of A-share should be no lower than 90% of the average price of 20 trading days before the benchmark day, and the H-share issuing price is 53.33% higher than the closing price on November 26, which stood at 0.75 HKD per share. After the acquisition, China Eastern Group’s stake of China Eastern will increase from 59.67% to 68.19%.
According to the data of the third quarter, China Eastern’s net asset per share was only 0.1086 yuan, and earning per share was –0.47 yuan. This means China Eastern Group will buy these shares at over 33 times P/B ratio.
The shortage of capital has become China Eastern’s biggest problem. The company’s total assets have grown from RMB 26.156 billion to RMB 75.471 billion and its fleet from 64 planes to 225 planes since it went public in 1997. But since the company has never raised capital since then, its liability to asset ratio grew from 72.01% to 98.49% in the third quarter of the year.
According to Luo Zhuping, China Eastern board secretary, if the injection is successful, China Eastern’s liability to asset ratio will drop by 3.77 percentage points, and the financial expense will be cut by RMB 170 million. But after the capital injection, China Eastern’s liability to asset ratio is still higher than international civil aviation companies, whose liability to asset ratio is usually lower than 80%.
Luo Zhuping revealed, conventionally, the fund injection plan should to be approved by China Eastern’s shareholder meeting and China Securities Regulatory Commission.
Luo Zhuping said after the capital injection China Eastern also needs to improve its financial status and services. China Eastern had hoped to introduce Singapore Airlines which is known for good services as strategic investor, but the cooperation was disrupted by China Airline, and since then has never been restarted as the aviation industry has come into winter.
Like China Eastern, China Southern is going to issue 721.15 million A-shares at 3.16 yuan per share and a certain amount of H-shares at 1 HKD per share. After the additional issuing, China Southern’s liability to asset ratio will drop to 80.5%.
Capital injection into domestic aviation companies is very timely due to the depression in the global aviation industry. Many local aviation companies are also seeking support from local governments. Hainan Airlines recently declared that it was considering seeking support from the government of Hainan province. Chen Feng, chairman of Hainan Airlines, told China Business News that the government of Tianjin was planning to inject RMB 200 million into the company’s subsidiary, and that other subsidiaries of the companies might cope with the current difficulty by additional share-issuing.
@chinastakes