Four days before the Chinese New Year, China Eastern Airlines made an auspicious debut on the world's markets by raising an estimated US$250 million. The success of the issue should pave the way for the other Chinese majors to follow suit, although holding company China National Aviation Corp may well beat them to the market.
China Eastern's initial public offering on 3 February was so well received in Hong Kong that placement was more than doubled when it emerged the issue was oversubscribed 23 times. The carrier made a retail offering of 343 million H shares in Hong Kong that generated about US$56 million.
It also sold 6.3 million American depository receipts (ADRs) in the US at $18 each, generating over US$113 million, and placed another 6.3 million at other locations in Asia and Europe.
Investor reception to the US offering was especially gratifying to the underwriters and airline, since the ADRs were priced at the top of the range of proposed prices. Listed in New York, China Eastern stock traded at or above its US$18 offering price during its first week after the IPO, at one point climbing $3 above that price. This was in marked contrast to the Chinese utility shares offered in the US three years ago that plunged below their offering price as soon as secondary trading started. The poor performance of the utility shares embarrassed the Chinese, cooling their ardour for a New York listing, and may have contributed to the delay in China Eastern's IPO.
The total issue of 1.4 billion shares or their equivalent in all markets represents 32 per cent of the airline's equity - just under the 35 per cent maximum foreign ownership limit allowed under Chinese law. Beijing had previously announced a limit of 25 per cent on foreign voting rights, but the CAAC and Ministry of Foreign Trade and Economic Cooperation recently lifted that limit for China Eastern to 35 per cent. The 25 per cent limit still applies to other Chinese airlines.
The IPO process has brought a new level of transparency to China Eastern's affairs, which has already provoked a reaction from analysts concerned about the airline's slim margins, extensive capital investment programme for new aircraft over the next four years, and the expected costs for airport development plans at its Shanghai headquarters.
The airline is committed to buying five A340s and nine MD-90s between now and 2000. China Eastern has said it would use proceeds from this IPO to fund some of these aircraft purchases, spares, and a new flight simulator.
Beijing's intention has always been to follow China Eastern's listing with the foreign market debut of the two other major airlines controlled by the Civil Aviation Administration of China. The next airline to take the IPO route is scheduled to be China Southern Airlines, followed by Air China. But now there are reports that China National Aviation Corp is also considering a listing on Hong Kong's stock exchange.
CNAC holds major stakes in Dragonair, Air Macau, and Zhejiang Airlines, as well as interests in Hong Kong's Chek Lap Kok airport. Before it made any offering it would need to create a recognisable corporate structure and decide which of its assets to include.
CNAC has admitted that it is considering several funding options, but has yet to confirm that it plans to take the IPO route, or how such an offering would dovetail with the plans of China Southern or Air China for international listings.
Source: Airline Business
