Cathay Pacific (CX, Hong Kong International) is putting its proposed capital reduction program to the vote at an extraordinary shareholders meeting in Hong Kong on October 11.
As previously reported in ch-aviation, the board of Cathay Pacific wants to cancel the HKD19.5 billion Hong Kong dollars (USD2.5 billion) credit remaining in the airline's preference shares capital account. The board wants to use this to redeem previously issued preference shares. In 2020, the airline issued HKD19.5 billion worth of preference shares to the Hong Kong Special Administrative Region Government as part of a recapitalisation program extended to the then financially distressed carrier.
"The board believes that the proposed capital reduction is fair and reasonable and in the interests of the company and the shareholders as a whole," reads a September 18 letter to shareholders. "The implementation of the proposed capital reduction will not, of itself, alter the consolidated net asset value, underlying assets, liabilities, business, operations, management or financial position of the company or the interests of the shareholders as a whole."
In the six months to June 30, 2023, the Cathay Pacific Group (which also includes Air Hong Kong and HK Express) recorded revenues of HKD43.953 billion (USD5.62 billion) and a HKD4.26 billion (USD544.8 million) net profit - the airline's first profit in three years. Last month, Cathay's chairman, Patrick Healy, said the airline was only partway through its rebuilding process after a torrid time through Covid-19. However, the half-yearly results indicated the recovery was on course, and the capital reduction and preference share redemption proposal reflected this.
If approved by shareholders, the immediate effect of the capital reduction is to shift the HKD19.5 billion from the share capital account in Cathay's balance sheet to a preference shares reserves account. "The company's net asset value will remain unchanged before and after the proposed capital reduction becomes effective. The proposed capital reduction will not result in any change in the relative rights of the shareholders."
The proposal will require approval from ordinary shareholders through a special resolution at the October meeting, with a vote being taken by a poll. The board also notes that no share transfers will be allowed between October 6 and 11 inclusive. This book closure period will enable the airline to identify shareholders entitled to attend the meeting and vote. The letter, signed by Healy, recommends that shareholders vote in favour of the capital reduction proposal.
