China Eastern Air to Raise $570 Million in Share Sale

China Eastern Airlines Corp. (670), the country’s second-largest carrier by passenger numbers, rose the most in about three months in Hong Kong after announcing plans to raise $570 million selling shares to its state-owned parent.

The company gained 4.7 percent, the most since July 13, to close at HK$2.43. Its Shanghai-listed stock rose 5.2 percent, the most in about eight months.

The airline will use the funds from selling new Shanghai and Hong Kong stock to repay borrowings, helping pare debt levels that are the highest among the nation’s big three carriers. Air China Ltd. (753) and China Southern Airlines Co. have also received new funding from their parents as the government helps the industry contend with slower traffic growth and an end to large gains from currency appreciation.

“The injection will help the carrier’s mid-to-long term development,” said Li Lei, a Beijing-based analyst at China Securities Co. “It also showed government support for the strategic industry.”

China Eastern’s share sale will comprise 698.9 million Shanghai-listed shares priced at 3.28 yuan apiece and 698.9 million Hong Kong-listed shares costing HK$2.32 each, the Shanghai-based airline said in a stock-exchange filing yesterday. That’s about in line with the previous closing prices on Sept. 5. The shares were subsequently suspended until today.

The airline will raise 2.29 billion yuan ($361 million) from the Shanghai stock sale and HK$1.62 billion ($209 million) in the Hong Kong offering, it said. The funds will be used to repay bank and financial institutions as well as for boosting working capital.

The airline’s long-term debt is 1.9 times total equity, higher than Air China’s 1.2 times and China Southern’s 1.1 times, according to data compiled by Bloomberg.

Lower Profit

China Eastern’s first-half profit tumbled 65 percent, the smallest drop among the nation’s big three airlines, to 806.9 million yuan because of higher fuel costs and currency losses.

Air China announced a 1.05 billion yuan share sale to its state-owned parent in April after its parent received government subsidy. China Southern said in June it was planning a sale of as much as 2 billion yuan. China Eastern didn’t say if its parent received subsidy from the government.

China Eastern plans 12.6 billion yuan of capital spending in the second half, mainly for plane purchases. It will receive 21 new aircraft including Airbus SAS A320s, twin-aisle A330s and Boeing Co. (BA) 737s.

To contact the reporter on this story: Jasmine Wang in Hong Kong at Jwang513@bloomberg.net

To contact the editor responsible for this story: Neil Denslow at ndenslow@bloomberg.net

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