Cathay Pacific to embark on USD 5.2bn capital recapitalisation exercise

Cathay Pacific will embark on a HK$40 billion ($5.2 billion) capital recapitalisation exercise after the Hong Kong government offered a nearly HK$30 billion bailout in loans and equity, it was reported on Tueday.

Confirming an earlier exclusive report by the South China Morning Post newspaper, the flag carrier announced the government would take a 6.08 per cent stake in the company, as part of a bid to ensure it has sufficient liquidity to survive the devastating onslaught of the coronavirus pandemic.

As part of the deal, the government will set up a new entity, Aviation 2020, to buy HK$19.5 billion in preferential shares – which is equity with restricted voting rights – and warrants of up to a further HK$1.95 billion purchase of shares at a later date.

It will also offer a HK$7.8 billion bridging loan to Cathay Pacific.

In exchange for equity, the government will be taking up two "observer" boardroom seats in an unprecedented shake-up that will empower it to have a direct say in how the airline is run, sources have told the South China Morning Post newspaper.

The two observers will not have voting rights on the board but would have a say on major decisions that affect the public's interests.

Trading was suspended on Tuesday morning while the city's leader, Carrie Lam met the Executive Council, her de facto cabinet, to get final approval of a package that is expected to be announced later in the day.

The coronavirus pandemic has forced airlines across the world to boost their cash position or seek government bailouts to survive the crippling collapse in air travel.

Cathay Pacific lost HK$4.5 billion in the first four months of 2020 through the pandemic, and on March 11 it had HK$20 billion in unrestricted liquidity going into the health crisis.