The Hong Kong government will take a stake in Cathay Pacific and gain a presence on the airline’s board as part of a state-backed HK$39bn ($5bn) recapitalisation programme.
The government will contribute HK$27.3bn to the bailout in the form of a bridge loan, preference shares and warrants. Authorities will be able to send two “observers” to board meetings and have access to information from management.
Analysts said 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. It also marks a rare direct purchase by the Hong Kong government of a stake in a private company in the city.
“The recapitalisation proposal is . . . in response to a series of unexpected events outside the Cathay Pacific Group’s control, including the outbreak of the global Covid-19 pandemic,” the airline said in a statement on Tuesday.
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 week of each other, after coming under pressure from Beijing over the airline’s handling of staff who had allegedly participated in the protests.
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, while Qatar Airways’ shareholding will shrink from 9.9 per cent to 9.3 per cent.
Shares in Cathay, Swire Pacific and Air China were suspended on Tuesday ahead of the recapitalisation announcement. Cathay’s shares closed at HK$8.80 on Monday and have in recent months traded at around a 10-year low.
“Cathay Pacific has explored available options and believes that a recapitalisation is required to ensure it has sufficient liquidity to weather this current crisis,” the company said in a statement to the Hong Kong stock exchange.
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.
As of the end of last year Cathay employed 28,200 people in Hong Kong.