The Hong Kong government will take a stake in Cathay Pacific and increase its influence over the airline’s board as part of a HK$39bn (US$5bn) rescue plan.
In what marks a rare direct purchase by the state of a shareholding in a private company in the Asian finance hub, authorities will contribute HK$27.3bn to a bailout of the carrier in the form of a bridge loan, preference shares and warrants.
Hong Kong’s government will also be able to send two “observers” to board meetings and have access to information from management.
But analysts cautioned that the creeping presence of the government in the company — with state-owned Air China also holding a substantial stake — would increase concerns about the potential for Beijing to influence management.
“Quite frankly without this plan the alternative would have been a collapse of the company,” Patrick Healy, Cathay Pacific’s chairman, said at a news conference on Tuesday following the announcement.
The move hands a lifeline to the carrier, which has suffered from months of disruption from the coronavirus crisis and last year’s pro-democracy protests. Cathay replaced its chief executive and its chairman resigned last year within weeks of each other, after coming under pressure from Beijing over the airline’s handling of staff who had allegedly participated in the protests.
Cathay has been heavily exposed to the disruptions caused to air travel by the coronavirus pandemic because most of its revenues come from international flights. Its passenger numbers fell more than 99 per cent year on year in April. Cathay estimated that it was currently burning through HK$2.5bn to HK$3bn a month, as many of its planes lay idle.
The deal will hand the Hong Kong government a 6.1 per cent stake but Swire Pacific will remain the controlling shareholder, with its holding diluted from 45 per cent to 42 per cent after the recapitalisation. Air China’s stake will fall from 29.9 per cent to 28 per cent. Qatar Airways, the third-biggest shareholder, will have its stake diluted from 9.9 per cent to 9.3 per cent.
“It strikes a suitable balance between continuing to allow Cathay Pacific to operate independently versus [the Hong Kong government] having some sort of surveillance, given the government has lent a lot of money to Cathay,” said Paul Yong, analyst at DBS, of the rescue package.
The company said it had “explored available options” before committing to the recapitalisation.
Paul Chan, Hong Kong’s financial secretary, said the city’s government did not intend to be a long-term shareholder in the airline and would not “interfere” in its operation or management.
Cathay’s shares closed at HK$8.80 on Monday and have in recent months traded at around a 10-year low. They were suspended from trading before the announcement on Tuesday.
As part of the bailout, Hong Kong’s government will give Cathay a HK$7.8bn bridge loan that it can immediately draw down. The airline will also issue $19.5bn in preference shares and warrants to the government, and launch a HK$11.7bn rights issue to existing shareholders.
Luya You, an analyst at Bank of Communications International, said the move was unprecedented for the Hong Kong government.
“It is monumental because there has been no record of them giving this kind of money to airlines in the past,” she said, adding that it reflected the importance of the carrier to Hong Kong’s status as Asia’s financial hub.
Cathay Pacific is a substantial employer in Hong Kong, with more than 28,000 staff in the city as of the end of last year.
Additional reporting by Thomas Hale