A Cathay Pacific Boeing 777-300ER plane lands at Hong Kong Administrative Region, China August 14, 2019. (Photos: CGTN)
Cathay Pacific Airways Ltd said it expects to repay the Hong Kong Special Administrative Region (HKSAR) government for 19.5 billion HK dollars (2.52 billion U.S. dollars) of preference shares over a three to five year period.
The shares are part of a 5 billion HK dollars recapitalization packageannounced on Tuesday to help the airline weather the coronavirus crisis, which the International Air Transport Association estimates will cost the industry a record 84 billion HK dollars in 2020.
The notes carry a coupon rate of 3 percent for the first three years, rising to 5 percent in year four, 7 percent in year five and 9 percent in year six, giving the airline an incentive to redeem them.
"We would certainly be expecting to repay that over a 3-5 year period," Chief Financial Officer Martin Murray said in an analyst briefing posted to the airline's website late Tuesday.
Murray said the package, which also includes an 11.7 billion HK dollars rights issue to current shareholders including Swire Pacific Ltd, Air China Ltd and Qatar Airways, would more than halve the airline's gearing levels.
"That in turn restores access to both the equity and debt market and allows us to tap that market later in the year or next year for equity and debt," he said.
Cathay Pacific aircraft are seen parked on the tarmac at the airport, following the outbreak of the new coronavirus, in Hong Kong Special Administrative Region, China March 5, 2020.
The HKSAR government could gain a 6 percent stake in Cathay via 1.95 billion HK dollars of warrants convertible to shares. Finance Secretary Paul Chan said on Tuesday it was not the government's intention to remain a long-term shareholder in Cathay.
Swire, which owns 45 percent of Cathay, has agreed to remain a controlling shareholder for as long as the government owns preference shares or any amount of a 7.8 billion HK dollars bridging loan remains outstanding.
Daiwa analyst Kelvin Lau told clients he expected the airline's share price to come under pressure because of the potential 43 percent dilution from the recapitalization package.