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China Eastern in $2.3 billion private share sale

China Eastern Airlines will conduct private share placements that will see Juneyao Airlines and two other entities become shareholders.

In a Hong Kong stock exchange disclosure, the SkyTeam alliance member says it will issue up to 1.61 billion worth of A-shares, valued at CNY11.8 billion ($1.78 billion), and up to 517.7 million of H-shares valued at HK$3.56 billion ($533.9 million).

For the A-shares, Juneyao Airlines will subscribe CNY2.5 billion worth of shares, while parent company Juneyao Group will subscribe CNY7.3 billion worth of shares. A state-owned entity, China Structural Reform Fund, will subscribe CNY2 billion worth of shares.

The CNY11.8 billion raised from this particular issuance will be used to finance the delivery of 18 aircraft (CNY9.02 billion), 20 engines on standby use (CNY1.78 billion), and 15 aircraft simulators (CNY996 million).

On the H-shares issuance, only the two Juneyao entities will subscribe to the shares. Funds raised will be used to supplement China Eastern's working capital.

China Eastern explains that besides financing its fleet expansion needs, the fund raising will reduce its gearing ratio, and improve shareholding and capital structures. It also notes that the issues are in line with the Chinese government's ongoing mixed ownership reforms.

While the move dilute the shareholding of China Eastern's parent CEA Holding, from 56.38% to a "lowest approximate" of 49.13%, CEA Holding will continue to be the airline's controlling shareholder. Both Juneyao Airlines and its parent Juneyao Group "intend to own in total not more than 10%" of the company, while the Structural Reform Fund will own less than 2% of China Eastern.

A final issue price of the A-shares and H-shares will be determined by the carrier's board, and that regulatory approvals will be obtained from the Chinese and Hong Kong authorities. It adds that a three-year lock-in period will also apply following the two share issuances.

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