Cathay Pacific plans to repay Hong Kong government over 3 to 5 years

[SYDNEY] Cathay Pacific Airways said it expects to repay the Hong Kong government for HK$19.5 billion (S$3.5 billion) of preference shares over a three to five year period.

The shares are part of a US$5 billion recapitalisation package announced on Tuesday to help the airline weather the coronavirus crisis, which the International Air Transport Association estimates will cost the industry a record US$84 billion in 2020.

The notes carry a coupon rate of 3 per cent for the first three years, rising to 5 per cent in year four, 7 per cent in year five and 9 per cent in year six, giving the airline an incentive to redeem them.

"We would certainly be expecting to repay that over a 3-5 year period," chief financial officer Martin Murray said in an analyst briefing posted to the airline's website late Tuesday.

Mr Murray said the package, which also includes a HK$11.7 billion rights issue to current shareholders including Swire Pacific, Air China and Qatar Airways, would more than halve the airline's gearing levels.

"That in turn restores access to both the equity and debt market and allows us to tap that market later in the year or next year for equity and debt," he said.

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The Hong Kong government could gain a 6 per cent stake in Cathay via HK$1.95 billion of warrants convertible to shares. Finance Secretary Paul Chan said on Tuesday it was not the goverment's intention to remain a long-term shareholder in Cathay.

Swire, which owns 45 per cent of Cathay, has agreed to remain a controlling shareholder for as long as the government owns preference shares or any amount of a HK$7.8 billion bridging loan remains outstanding.

Daiwa analyst Kelvin Lau told clients he expected the airline's share price to come under pressure because of the potential 43 per cent dilution from the recapitalisation package.

REUTERS