Hainan Airlines plans $1.2 billion share sale

Jasmine Wang ( China Daily )

Updated: 2011-07-13

HONG KONG - Hainan Airlines Co, controlled by the investment arm of the Hainan provincial government, plans to raise as much as 8 billion yuan ($1.2 billion) in a private share placement partly to help pay bank loans.

The carrier will sell up to 1.24 billion new shares for at least 6.42 yuan apiece, it said in a filing to the Shanghai Stock Exchange on Tuesday.

Hainan Airlines Co passenger plane at Meilan Airport in Haikou, Hainan province. The carrier will use 6 billion yuan of the proceeds from a share sale to reduce debt as rising borrowing costs have had "an adverse effect" on operations, the airline said on Tuesday.?[Photo/China Daily]

The target is 13 percent below its 7.35 yuan closing price on July 8. Trading in the shares has been suspended since Monday, according to a company statement.

Hainan Airlines is expanding routes and adding planes amid rising competition from high-speed rail and as travel demand in China surges.

The carrier will use 6 billion yuan of the proceeds to reduce debt as rising borrowing costs have had "an adverse effect" on operations, the airline said on Tuesday.

"Hainan Airlines has huge funding pressure because it can't get a capital injection from the central government," said Li Lei, a Beijing-based analyst with China Securities Co. "The placement can reduce its debt and support plane purchases."

The larger rival Air China Ltd raised about 6.5 billion yuan in November in a share sale to investors including its government-controlled parent, China National Aviation Holding Co.

China Southern Airlines Co got about 10 billion yuan in a similar State-backed share sale last year, while China Eastern Airlines Corp raised 12 billion yuan in 2009.

Hainan Airlines has a debt to asset ratio of 70 percent, the highest among China's listed airlines, according to Bloomberg data. Air China, the nation's biggest carrier, has a ratio of 54 percent, based on its latest filing.

"The company's financial expenses have increased rapidly," Hainan Airlines said.

The People's Bank of China raised interest rates on July 6 for the third time this year amid efforts to cool the economy.

Hainan Airlines is a unit of Hainan province-controlled HNA Group Co, China's fourth-largest aviation company, which operates carriers, airports, hotels and department stores.

No more than 10 investors or individuals will be selected to buy the shares and the controlling shareholder and affiliates are excluded from the sale, the company said in the statement.

Controlling shareholder Grand China Air Co's stake will be diluted to 33.96 percent from 44.22 percent, should the maximum 1.24 billion new shares be sold, Hainan Air lines said in the statement.

Hainan Airlines said on June 24 it plans to sell up to 2 billion yuan in three-year bonds overseas to support its foreign business.

It also issued a 5 billion yuan bond in May. HNA's unit, Hong Kong Airlines Ltd, plans to sell a stake to private-equity investors ahead of an initial public offering next year that might raise up to $1 billion, Yang Jianhong, president of Hong Kong Airlines, said in March.

Bloomberg News