China Southern Airlines is set to become the first Chinese airline to obtain a foreign stock exchange listing, although its initial public offering seems to be designed more to test the market than to raise capital.
China Southern has taken the big step of filing its draft registration statement with the US Securities and Exchange Commission with a target release date of October. The IPO could come immediately after the SEC allows general distribution of the registration statement.
Goldman Sachs, China Southern's lead underwriter, has started circulating the draft statement among US investment banks in the search for other underwriters and has reportedly applied to list the shares on the New York Stock Exchange.
The price will be set shortly before the IPO is released, but the carrier is aiming to raise some $200 million. This is well below an earlier suggestions of offering 25 per cent of the carrier's stock and suggests that the purpose of China Southern's IPO is more as a pathfinder for later Chinese airline offerings than as a fund raising exercise.
Indeed, judging from the recent interest of banks in bidding to finance the airline's delivery of two B777s and a B737 over the next two months, and its recent success in obtaining pre-delivery financing for one of the B777s without a Chinese bank guarantee, China Southern could continue to attract all the debt financing it needs at favourable rates for the next several years.
China Southern and China Eastern Airlines announced plans last year for New York IPOs and stock exchange listings, but delayed those plans due to a market downturn and the poor reception received by other Chinese IPOs.
Initially, the intention was to have parallel IPOs and listings for both China Southern and China Eastern, although there is good reason to suspect this was designed primarily to spur both carriers on in their preparations. If all goes well, China Eastern will go to the US market early next year with plans to raise up to $450 million. Air China is still slated to follow several years later.
Part of the reason for de-linking China Southern and China Eastern is that the former appears better prepared, but underwriters may also want to avoid the experience of two Indonesian pulp companies which made simultaneous offerings in April, but found that US investors lumped them together when each would have done better with separate flotations.
Those Indonesian IPOs were the first on Wall Street from any emerging markets since Mexico's peso crisis. Since then, several South American equity issues have done well, encouraging some analysts to predict that the drought on emerging market IPOs is over. And airline stocks have also rebounded.
Source: Airline Business
