China’s Hainan Airlines to raise $7.5bn to offset debts

Hainan Airlines Holding has revealed a CNY50 billion yuan (USD7.5 billion) plan to reduce its debts as part of its ongoing restructuring plan. It will sell new A-Shares, most of the proceeds of which will be used to ease its financial obligations.

The aviation unit of bankrupt Chinese conglomerate HNA Group will issue 16,436,673,928 new shares, doubling the total to 33,242,794,258, it revealed in several stock market disclosures on November 30 and December 3.

Of the new shares, exactly 4.4 billion will be sold to strategic investors for CNY2.8 (USD0.44) each. At the same time, the remaining 12,036,673,928 will be given to creditors at CNY3.18 (USD0.50) each “to pay off the corresponding debts to resolve the debt risks of Hainan Airlines Holding and its subsidiaries, preserve operating assets, and reduce the debt-to-asset ratio.” The suggested price for the creditors’ debt-to-equity swaps would work out at around CNY38.28 billion (USD6 billion).

Under the restructuring, Liaoning Fangda Group has already agreed to acquire the aviation unit as a strategic investor. The holding includes Hainan Airlines and subsidiaries Air Changan, China Xinhua Airlines, Fuzhou Airlines, GX Airlines, Lucky Air (China), Shanxi Airlines, Urumqi Air, HNA Aviation Technology, Beijing Kehang Investment, and Hainan Fushun Investment and Development.

The plan to repay debts in this manner and the reorganisation of investors’ shares “have greatly increased the company’s net assets, and the proposed conversion of stock is based on the secondary market price of the stock, taking into account the creditors, the company, and the company’s original shareholders,” the most recent filing said.

After the company’s creditors vote on the plan at an upcoming meeting, the date of which was not specified, “the stock value and payment consideration will be fundamentally balanced, and the original shareholders’ equity will not be diluted,” it added.

In October, Hainan Airlines posted a third-quarter net loss of CNY2.56 billion (USD402 million). Although revenue climbed 10% year-on-year, the loss was smaller than the CNY3.8 billion (USD596 million) shortfall for the same period a year earlier.