The Government of Hong Kong is set to take a 6% stake in Cathay Pacific (CX, Hong Kong International) as part of the locally-based carrier's roughly HKD39.0 billion Hong Kong dollar (USD5.03 billion) recapitalisation plan.
In a stock market filing, Cathay Pacific said the state, through its Aviation 2020 Limited vehicle, would be offered 416,666,666 preferential shares, i.e. those with restricted voting rights, valued at HKD19.5 billion (USD2.52 billion) and also has warrants for a further HKD1.95 billion (USD252 million) worth of ordinary shares. If both offerings are fully exercised, Aviation 2020 Ltd will gain a 6.08% stake in the airline and will also hold 195,000,000 Preference Shares immediately after the completion of the recapitalisation proposal. As an additional support measure, Aviation 2020 Limited will also extend a HKD7.8 billion (USD1.01 billion) committed bridge loan facility to Cathay Pacific.
Cathay Pacific will also launch a HKD11.7 billion (USD1.51 billion) rights issue among existing singular shareholders - Swire Group, Air China, and Qatar Airways. Should they participate, and given Aviation 2020 Ltd's accession to the fold, their shareholdings will be adjusted as follows:
- Swire Group's will decline from a 45% shareholding to 42.26%;
- Air China's will decrease from a 29.99% shareholding to 28.17%;
- Qatar Airways' will decline from 9.99% to 9.38%;
- Free float will reduce from 15.02% to 14.11%.
Cathay Pacific intends to use the capital raised via its three-part plan to help it withstand the current industry-wide downturn and to provide it with the stable financial platform needed to undertake a wide-ranging restructuring plan.
Among the measures the carrier has thus far undertaken to preserve cash include cutting passenger capacity by 97%, implementing executive pay cuts, deferring new aircraft orders and carrying out the early retirement of older aircraft, as well as the implementation of a voluntary special leave scheme, which had an 80% employee uptake.
"Despite all these measures, the collapse in passenger revenue to only around 1% of prior year levels has meant that we have been losing cash at a rate of approximately HKD2.5-3 billion (USD320-390 million) per month since February, and the future remains highly uncertain," Cathay Pacific Chairman Patrick Healy said in a statement.
"The infusion of new capital that we have announced today does not mean we can relax. Indeed quite the opposite. It means that we must redouble our efforts to transform our business in order to become more competitive. Today we have announced a new round of executive pay cuts and a second voluntary special leave scheme for our employees."
By the fourth quarter of this year, Cathay Pacific's management will recommend to the airline's board the optimum size and shape of the Cathay Pacific Group, which aside from Cathay Pacific includes Cathay Dragon, HK Express, and Air Hong Kong, to meet Hong Kong's air travel needs while taking into account the firm's financial health over the coming years.
"We are in a very dynamic situation. We need to make the right decisions to adapt to the new reality of global aviation and secure our long-term future. This will require re-evaluating all aspects of our business model in light of the rapidly changing macro and industry dynamics. Inevitably this will involve rationalisation of future planned capacity compared to our pre-crisis plans, taking into account the market outlook and cost structure at that time," Healy added.
