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Update: China’s HNA buys 13% of Virgin Australia, plans larger stake

Tuesday, May 31, 2016 - 07:23
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Virgin Australia said on Tuesday it had entered into a deal with HNA Aviation Group for the Chinese conglomerate to invest A$159 million (S$158 million) through an equity placement.

[SYDNEY] HNA Group agreed to buy at least 13 per cent of Virgin Australia Holdings Ltd, adding a foothold in the Australian airline to the Chinese conglomerate’s more than US$91 billion of assets worldwide.

The owner of Hainan Airlines Co will buy about A$159 million (S$158 million) of new shares in Virgin Australia, the Brisbane-based company said Tuesday. HNA, which also signed a flights and code-share alliance with Virgin, plans to increase its stake to about 20 per cent over time, Virgin said.

HNA will pay 30 Australian cents apiece, according to the statement. That’s 7.1 per cent more than the stock’s last close in Sydney, but still 46 per cent less than the 55.5 Australian cents reached in April last year.

The deal brings another major shareholder to join Air New Zealand Ltd, Etihad Airways PJSC and Singapore Airlines Ltd on Virgin’s shareholder registry. Currently, the trio almost equally control the airline.

Air New Zealand, the biggest investor in Virgin Australia, in March said it may sell its 26 per cent stake. That potential exit stoked speculation that Singapore Air would snap up the stake to stop an unwelcome foreign airline muscling in.

“Singapore are supportive of this arrangement,” Virgin Australia chief executive officer John Borghetti said in an interview. “But clearly the way that China is growing, direct services in and out of China are very important.” Air New Zealand isn’t represented on Virgin Australia’s board and wasn’t consulted about the HNA investment, Mr Borghetti said.

The investment generates fresh funds for Virgin during a capital review, after Morgan Stanley said the Australian airline needs a further A$700 million in financing.

“It’s hard to say whether this is a big enough capital injection to change their fortunes,” said Daniel Mueller, an analyst at Forager Funds Management Pty Ltd in Sydney.

For HNA, whose range from airlines and hotels to department stores and supermarkets, the stake in Virgin follows a series of acquisitions.

Air France said yesterday that it’s in talks to sell half of its catering unit Servair to HNA. Last month, HNA agreed to buy Swiss airline-catering company Gategroup Holding AG for about US$1.4 billion, followed by a deal to purchase closely held Carlson Hotels Inc, gaining hospitality brands including Radisson and Park Plaza.

HNA is also in exclusive talks with the biggest shareholder of CWT Ltd for a potential acquisition of shares in the Singapore-based logistics company.

BLOOMBERG

 

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