ATW
23rd Jan 2008
Air China parent China National Aviation Holding Co. submitted its formal bid to China Eastern Airlines last Friday, it announced yesterday, saying it intends to purchase 2.9 billion H shares in CEA for at least HK$5 per share and raise its stake to 26.14% from the current 12.07%.
According to China International Capital Corp., CNAC's financial adviser, CEA will earn HK$14.9 billion from the offer and reduce its debt ratio from the current 94.3% to 77%. The deal would increase CEA's annual revenue by HK$4.31 billion and cut annual costs by HK$1.08 billion. CNAC said it will cooperate with China Eastern, especially in Shanghai, and that the carriers will launch a cargo joint venture.
But China Eastern expressed doubt about the offer, saying "it is informal and does not conform to legal procedures." CEA has said it will not accept any offer without the involvement of Singapore Airlines, which it claimed is its ideal cooperative partner (ATWOnline, Jan. 16).
SIA spokesperson Stephen Forsaw stated recently that SIA will be "very patient to develop relations with CEA on the terms both carriers agreed." He reiterated that SIA will not get into a "price war" with Air China for CEA.
Guosen Securities yesterday said CNAC's offer would result in better synergies for China Eastern than its deal with Singapore Airlines, which was rejected by CEA shareholders. But "due to CEA's continuous resistance and its November agreement signed with SIA that the carriers are not allowed to sign stake purchase agreements with other investors until Aug. 9, CEA will not reach an agreement with CNAC in the short term," Guosen said.
Industry analysts noted that CA's proposed alliance with CEA will pose a potential threat to China Southern Airlines, which is based in Guangzhou. CZ said yesterday that it will continue to keep a close watch on CEA and "will react properly to any changes in China's domestic airline industry."
CEA said a in separate statement released yesterday that it expects to report a profit for 2007 due to "currency exchange gains from yuan appreciation." It posted a net loss of CNY2.78 billion in 2006.
by Katie Cantle
http://atwonline.com/news/story.html?storyID=11480
