Hong Kong will lead a $5 billion rescue of Cathay Pacific Airways which has been hit by a global travel slump triggered by the Covid-19 pandemic. The government’s involvement in the recapitalisation follows the double blows of Hong Kong’s political unrest and the coronavirus outbreak, which Cathay said meant it was burning through about HK$3 billion ($387 million) a month in cash.
“The alternative would have been a collapse of the company. Commercial debt markets are effectively closed to airlines today who do not have extensive government shareholder support,” Cathay Chairman Patrick Healy told reporters on Tuesday. Cathay has grounded most of its planes, flying only cargo and a skeleton passenger network to major destinations such as Beijing, Los Angeles, Sydney and Tokyo.
Finance Secretary Paul Chan said the investment in Cathay was to help protect Hong Kong’s role as a leading international aviation hub while generating a reasonable financial return. “It is not our intention to become a long term shareholder of Cathay Pacific,” he told reporters. “It is not our intention to interfere with the operation and management of Cathay.”
Under the rescue plan, the Hong Kong government will be issued HK$19.5 billion of dividend-paying preference shares and HK$1.95 billion of warrants, giving it a 6% stake. It would also provide a HK$7.8 billion bridging loan and would have the right to two non-voting observers at board meetings. Chan said they would be seasoned business professionals. The deal includes a HK$11.7 billion rights issue to existing shareholders, led by Swire Pacific Ltd and Air China Ltd which had halted trading on Tuesday morning alongside Cathay, pending the announcement. Swire, which holds 45%, Air China which owns 30% and Qatar Airways with 10% plan to participate in the rights issue, Cathay said. Their holdings will fall to 42%, 28% and 9.4% due to the government stake.