Cathay Pacific has began a HK$40 billion (US$5.2 billion) recapitalisation program after the Hong Kong government offered a near HK$30 billion bailout in loans and equity. Giving its full backing for the city to remain a leading international aviation hub.
Cathay’s restructuring package marks the first time the Hong Kong government has directly injected money into a private company.
Hong Kong’s flagship carrier announced the government, through a new entity Aviation 2020 Limited, would take a 6.08 per cent stake in the company, as part of a bid to ensure it has sufficient liquidity to survive the worldwide shutdown caused by the COVID-19 pandemic.
As part of the deal, the government is to create a new company to buy HK$19.5 billion in preferential shares (which is equity with restricted voting rights), and warrants of up to a further HK$1.95 billion purchase of shares at a later date.
The government will also offer a HK$7.8 billion bridging loan to Cathay Pacific.
“Cathay Pacific has explored available options and believes that a recapitalisation is required to ensure it has sufficient liquidity to weather this current crisis”. As stated in today's stock exchange announcement.
“It is expected to place Cathay Pacific in a better position to compete vigorously and to capitalise on any opportunities that may arise as a result of the current crisis and should position Cathay Pacific for growth.”
Existing shareholders Swire Pacific, Air China and Qatar Airways will also subscribe to a HK$11.7 billion rights issue.
They will see their stake diluted to:
- Swire Pacific will control 42.26 per cent,
- Air China will hold 28.17 per cent, and
- Qatar Airways will own 9.38 per cent.
In a statement, Swire Pacific said it supported this recapitalisation plan, and pointed to the airline’s “critical role” in Hong Kong and the region. Swire will buy new shares at a cost of HK$5.3 billion.
“We have full confidence in the long-term future of Cathay Pacific Group and the important role it plays within Hong Kong,” the statement issued by Swire Pacific said.
The airline said in the stock exchange filing it had been losing cash at a rate of HK$2.5 billion to HK$3 billion a month since February, and disclosed a 99 per cent collapse in passenger revenue compared to 2019.