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Qatar Airways to buy 9.6% of Cathay Pacific for HK$5.16b

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Qatar Airways Ltd agreed to acquire a stake in Cathay Pacific Airways Ltd, a deal that would make it the third-largest shareholder in the premium carrier as Asia's biggest international airline faces mounting competition from low-cost and mainland Chinese rivals.

[SINGAPORE] Qatar Airways Ltd agreed to acquire a stake in Cathay Pacific Airways Ltd, a deal that would make it the third-largest shareholder in the premium carrier as Asia's biggest international airline faces mounting competition from low-cost and mainland Chinese rivals.

The Middle Eastern carrier will buy 9.6 per cent of Cathay from Hong Kong-based Kingboard Chemical Holdings Ltd and its associates for HK$5.16 billion (S$902.31 million), according to a filing to the city's stock exchange Monday.

Qatar Airways will buy about 378.2 million shares at HK$13.65 apiece in cash, a 3.4 per cent premium over the closing price of HK$13.20 on Nov 3. The transaction will be completed later on Monday (Nov 6), Qatar Airways said in the statement.

Shares of Cathay fell as much as 4.9 per cent to HK$12.56 on Monday, the biggest intraday drop in more than five months.

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“I don’t see Cathay being excited about this and I wouldn’t expect major changes even in the medium term,” said Will Horton, an analyst at CAPA Centre for Aviation in Hong Kong. “It has the flavour of a passive stake despite the optics appearing significant.”

Cathay CEO Rupert Hogg said he looks forward to a “continued constructive relationship”.

The purchase, the first by the Middle Eastern airline in an Asian carrier, may help the Doha-based company gain a toehold in the region and get access to mainland China that is set to emerge as the world's biggest aviation market within a decade.

China has been at the centre of many deals as global airlines seek a piece of the pie as international traffic from the country surges. Delta Air Lines Inc bought a minority stake in China Eastern Airlines Corp in 2015, while American Airlines purchase a minority stake in China Southern Airlines Co.  The International Air Transport Association predicts passengers will nearly double to 7.8 billion by 2036, and Asia Pacific will contribute more than half of the new additions.

The deal comes a few months after Qatar Airways dropped a plan to invest in American Airlines Group Inc, which rebuffed the attempt.

“Geographically, the Middle Eastern carriers have been constrained from conquering Hong Kong and China,” said Mohshin Aziz, an analyst at Maybank Investment Bank Bhd in Kuala Lumpur. “They have a lot of capacity so they have to look elsewhere. If both airlines can work together, it will definitely be good for Cathay.”

The Middle Eastern airline has a 20 per cent stake in British Airways parent IAG SA. It also has 10 per cent of Latam Airlines Group SA, the biggest South American carrier, and plans to take a 49 per cent stake in minor Italian operator Meridiana SpA.

After Qatar Airways approached American Air for a stake, the US company's chief, Doug Parker said he wasn't keen on having the Gulf carrier as a shareholder. While the airlines are partners in the Oneworld alliance, Qatar Airways' move came as a surprise since American had publicly opposed the growth of Middle Eastern airlines in the US, saying they've benefited from US$50 billion in illegal aid.

“Cathay Pacific is one of the strongest airlines in the world, respected throughout the industry and with massive potential future,” Qatar Airways Group chief executive Akbar Al Baker said in a statement Monday. “This investment further supports Qatar Airways investment strategy.”

Both Cathay and Qatar Aiways collaborate together as members of the Oneworld alliance and “we look forward to a continued constructive relationship,” Cathay said in its statement.

Hong Kong conglomerate Swire Pacific Ltd, is the largest shareholder of Cathay with 45 per cent, followed by state-owned Air China Ltd with about 29.99 per cent.

Cathay is in the midst of the biggest corporate revamp in two decades to help revive earnings. It has announced job cuts and was in talks with pilots over compensation.

Cathay shares have risen by 29.4 per cent since the start of January despite the airline in August posting its worst first-half loss in 20 years.

Kingboard Chemical, a diversified group that is into the manufacture of laminates, glass yarn and copper foil, had built up the stake in Cathay Pacific through purchases from the stock market along with its associates. The company said it would recognise a gain of HK$800 million on the sale which represented its entire stake in the Hong Kong airline.

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