Three Chinese airlines are pressing ahead with plans for initial public offerings, but at presstime it was unclear whether they would beat the 1 January deadline. Missing that date would mean they would have to include another year's audited financial results in their share prospectuses.
Following the Civil Aviation Administration of China's recent disclosure that it had ordered China Eastern and China Southern to speed up their IPOs, China Eastern hosted a presentation in Shanghai for underwriters and brokers. At the same time China Southern revealed it was submitting final restructuring plans to Beijing for approval.
Two key issues remain: which of the two airlines will go to market first and in which stock market. A CAAC official hints it will be China Eastern, but the final choice depends on which carrier is ready when underwriters decide market conditions are ripe.
Despite Beijing's earlier insistence that listings by both airlines would occur only in New York, there is speculation about a dual listing in Hong Kong. China Eastern recently fuelled this possibility by indicating that Beijing had not yet made a final decision.
However, Hainan Airlines could beat both these offers to the market as its offering and listing are aimed only at the Shanghai stock exchange. It recently gained approval from China's Securities Regulatory Commission to offer 75 million Class B shares, available only to foreigners, plus 20 million Class A shares earmarked for local investors.
Other Chinese airlines are keeping a close watch on Hainan's domestic listing because it offers the prospect of obtaining foreign capital without the delays and uncertainties of foreign listings.
The success of the listing will depend on whether foreign investor confidence has recovered after Class B shares had fallen out of favour. This was largely because local speculators had devised ways to circumvent exchange rules designed to limit the shares' availability to foreigners.
Following a recent crackdown on such abuses and an official rejection of rumours that Class B shares might be legally available to some 'qualified' Chinese investors, foreign interest in B shares seems to have revived.
Several analysts have applauded Hainan's move to seek capital by this approach, although some of them regard its proposed pricing as low: the carrier hopes to raise about US$25 million from its offering. The airline is still subject to China's overall 35 per cent lid on foreign ownership and US investor George Soros already holds a 25 per cent stake bought by his investment fund through a private placement two years ago.
Part of the $25 million Hainan Airlines hopes to raise will come from its Class A share offering. This avoids the foreign ownership limits, but also represents the first time a Chinese airline has tried to raise capital in the domestic market. Traditionally, Class A shares have been subject to speculation, but new measures are designed to curb such abuses. Shanghai's stock exchange president recently predicted the number of Chinese companies listing on China's exchanges would double within four years.
The CAAC is already looking ahead to the next round of airlines it may approve for partial privatisation; in a recent report it listed China Northwest and China General Purpose Aviation. China Northwest is slated for restructuring to ready it for a proposed overseas IPO in 1998 or 1999.
Source: Airline Business
