China National Aviation (CNAC) has been been given the go-ahead to become the latest Chinese carrier to float on the Hong Kong stock exchange. The move comes as China prepares for a round of consolidation within its crowded airline market.
The Civil Aviation Administration of China (CAAC), which controls CNAC, has given the airline a green light to embark on an international roadshow, starting in Hong Kong on 13 October, on the way towards an initial public offering at the end of the month.
The decision follows the recent success of dual listings in Hong Kong and New York by China Southern Airlines, which raised $631 million, and China Eastern Airlines, which raised $250 million. Both airlines sold a maximum 35%stake.
CNAC could raise up to $165 million from the sale of an initial 425 million shares, with another 124 million in reserve. A stake of around 14% will be put up for public sale, while 8% are to be set aside for strategic investors. Another 8% will go to underwriters Peregrine Capital and the Chao family, which recently struck a share-swap deal over its stock in Dragonair.
The listing is expected to provide capital for further acquisitions as the CAAC continues with its push for a greater consolidation of China's 34 airlines, most of which are losing money.
CNAC has invested heavily in recent years acquiring controlling interests in Air Macau and Chinese domestic carrier Zhejiang Airlines, as well as Dragonair, in which it now owns over 43%. Analysts estimate that Dragonair alone accounts for close to 90%of the group's net profits, while Air Macau is expected to move into the black by end of this year.
Other of China's newly floated carriers are looking at acquisitions. Shanghai-based China Eastern has been cleared by the CAAC to begin detailed negotiations to acquire domestic operator China General Aviation, although CNAC itself has been showing interest in the loss-making Taiyuan-based carrier. China Southern says that it has also had approaches from smaller carriers hoping for mergers.
China Southern and China Eastern have followed their flotations with first-half results which were at the top end of analyst expectations. China Southern pushed net profits up by 35%, to ´410 million ($49 million). Sales climbed by nearly 20% to ´6.2 billion, helped by a buoyant Chinese market.
China Eastern posted a 19% rise in sales, bringing the total close to ´4 billion for the half year, while net profits also grew, to ´306 million, putting the airline on course for targeted year-end earnings of ´603 million.
Despite recent increases in domestic airfares, the two airlines are warning of tougher times ahead as capacity expands. China Southern is moving to boost regional services to SouthEast Asia, which now account for only 6% of sales revenue.
Source: Flight International