The long-awaited equity issues by China Southern and China Eastern appear to be finally moving closer following positive signals from the CAAC. Meanwhile foreign investors may purchase stakes in a Chinese regional airline and airport.
Shen Yuankang, the CAAC's vice minister for general administration, says China Eastern shares will be listed in New York and Hong Kong by the end of the year, with China Southern following in early 1997.
The proposed listings have been shelved since early 1994 when a combination of poor market conditions and lack of investor confidence saw both issues pulled. The apparent pecking order now appears to be reversed, with China Eastern set to list first. Previously, China Southern, which has been advised by Morgan Stanley, has always been the front runner. However, Shen's insistence that China Eastern would be first to market has not been confirmed by the airline. Moreover, the prospect of a dual listing in New York and Hong Kong has not been well received in the market, as Hong Kong is seen to have a better distribution system for Chinese paper.
Shen conceded that the listing process has taken longer than expected and pointed to outstanding tax issues - notably the treatment of state-owned land used by the carriers - as the main stumbling block. Market conditions now look better for Chinese IPOs than in recent years. Several Chinese firms have listed successfully on the Hong Kong exchange this year and the latest PRC ten-year bond issue was oversubscribed three times by investors in Asia, Europe, and the US.
However, Shen's timetable still appears optimistic, according to bankers in Hong Kong. By choosing to proceed with a New York listing the two airlines will need to secure a new asset valuation from the Securities & Exchange Commission. The CAAC has applied on behalf of the airlines but the process can take up to six months.
China Southern may also dispose of a stake in one of its domestic subsidiaries to overseas investors. A group of Saudi Arabian investors have signed a preliminary agreement to buy up to 35 per cent of Zhuhai Airlines. China Southern owns 60 per cent of the carrier with the balance held by the Zhuhai Gree Group, an electrical appliance company controlled by Zhuhai's municipal government. The airline operates three B737-300s to 12 points, including Beijing, Shanghai, Xiamen, and Wuhan.
The CAAChas set a 35 per cent ceiling on foreign investment and the Zhuhai deal would be only the second following the purchase of a 25 per cent stake in Hainan Airlines by a group led by the US investor George Soros last year.
The Saudi investors have also signed a preliminary agreement to buy 49 per cent of Zhuhai airport. The airport's deputy general manager, Feng Zhaoming, claims this would bring foreign investment in the airline and airport to $500 million. But the airline may be a more attractive proposition as the airport is closed to international traffic. As part of an understanding that resulted in Portuguese aid to build Macau's new airport, the Beijing authorities agreed to restrict traffic at neighbouring Zhuhai to domestic flights. Though built with a capacity of 12.5 million passengers a year, it is expected to end the year with a total throughput of only 750,000. Zhuhai Airlines accounts for about 60 per cent of the total.
D Knibb/T Ballantyne
Source: Airline Business
