Hainan Airlines was set to become the first airline to make its debut on the Chinese capital markets at presstime. Widely viewed as the country's most promising provincial carrier, Hainan was planning to issue a two-phase public offering designed to raise some US$41 million.

Hainan has split its offering to exploit foreign interest. The larger initial offering priced at US$34 million will be B shares available only to foreigners. Chinese investors are limited to a US$7 million A share offering, although they have been notorious for finding ways around these limits. All shares will be listed on the Shanghai stock exchange.

The airline had aimed to launch its B share offering for late May followed by its A share offering a month later. But the schedule has slid for two reasons. First, Beijing took steps in late May that investors viewed as the possible start of a new crackdown on market irregularities, which sent share indices into a tailspin. Brokers in Shanghai interpreted this as a temporary hiccup, but it obviously made for an indifferent time to launch an IPO.

Second, Hainan is seeking exemption from the current limit on foreign voting rights. Foreigners may own up to 35 per cent of a Chinese airline's equity, but exercise only 25 per cent of its voting rights. But Beijing decided to lift the foreign voting right limit to 35 per cent for China Eastern Airlines' overseas IPO in February. Hainan is hoping for a similar exemption, claiming that the lower voting rights lid creates inequality between different holders of B shares, and 'should not be applicable to a listed company.'

A quarter of Hainan's stock is already in foreign hands through the American Aviation Investment Fund (AAIF), controlled by George Soros. The new offering will take foreign ownership up to the 35 per cent limit and dilute AAIF's stake, bought in 1995, to 21 per cent.

Underwriters for Hainan, accompanied by the airline's president and chairman, Chen Feng, have conducted road shows in London, New York, and Hong Kong, which they used to highlight that Hainan was one of China's six most successful airlines last year with a profit of US$10.7 million. The carrier operates a core fleet of nine B737s, on operating leases.

Hainan is not alone among Chinese airlines hoping to raise local capital. With a 1996 profit above forecast, China Eastern Airlines is planning an A share offering in Shanghai. If sold at the same price as its IPO, it could raise up to $90 million. But China Eastern has not yet announced a date for this offering; its timing is probably to be linked up to Hainan's stock market debut.

Meanwhile, China Southern's overseas IPO could be delayed in the aftermath of the recent crash of one of its Boeing 737s at Shenzhen.


Source: Airline Business