AIR China, the owner of 17,5% of Cathay Pacific Airways, would buy as much as 13% more of the carrier from Citic Pacific, sources said yesterday .
Citic Pacific would announce a sale of Cathay shares soon, Kong Dan, chairman of parent Citic Group, said in Hong Kong yesterday, without identifying the buyer.
People familiar with the sale declined to be identified before an official statement had been released. Swire Pacific would remain Cathay’s biggest shareholder.
Air China would buy a further Cathay stake valued at as much as HK5,9bn (761m) to boost its presence in Hong Kong after being shut out of Shanghai by China Eastern Airlines’s planned acquisition of Shanghai Airlines. Beijing- based Air China, the world’s largest carrier by market value, is expanding as government stimulus helps the country avoid a slump in global travel.
“Air China must be proactive in expansion, given the fact that it lost the opportunity in Shanghai,” said Jack Xu, an analyst at Sinopac Securities Asia.
“Hong Kong is a good alternative and with the increased stake, Air China may have more say in operations like route planning,” he said.
The Cathay sale would allow Citic Pacific to better focus on its main business, Kong said. The company owns 17,5% of Cathay.
Cathay spokeswoman Carolyn Leung declined to comment yesterday .
Air China said last month it expected to report more than a 50% increase in first-half profit. Its passenger numbers rose 14%, as China’s economic stimulus spurred travel.
Traveller numbers rose 20% to 100,4-million, according to China’s Civil Aviation Administration .
Air China Board Secretary Huang Bin was not available for comment.
All three companies halted their shares from trading in Hong Kong yesterday. Cathay, 40% owned by Swire, fell 1,9% on Friday to HK11,62. It gained 33% this year. Air China closed little changed at HK4,57 It is up 90% this year, following the trend of markets in China.
Cathay, which owns 18% of Air China, co-operates with the Beijing-based airline in areas including cross-selling tickets on each others’ flights.
Air China increasing its stake in Cathay “would certainly reinforce the partnership,” said Damien Horth, an analyst at UBS in Hong Kong. He said that he was “surprised” by the planned transaction.
Cathay’s first-half passenger numbers fell 4,2% and sales tumbled 27%, as the global recession hammered international travel. The carrier made a net income of HK812m following a HK2,1bn fuel- hedging gain.
Citic said in May it would conduct a review of operations and sell off assets that were not efficiently managed or that had low returns. The move came after the company was forced to seek a state bailout following derivative losses.
Citic bought an initial 12,5% stake in Cathay from China International Trust & Investment Corporation Hong Kong in 1991, according to its website.
Air China’s parent last year offered to buy a stake in China Eastern to gain a hub in Shanghai. China Eastern rebuffed the bid.
Last month, it agreed to buy smaller neighbour Shanghai Airlines to gain a 50% market share in China’s financial capital. Bloomberg
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