Air China May List Under Hong Kong Shell Company

Air China, the country's largest airline group, may go public in a somewhat roundabout way.

Air China has suffered losses for three consecutive years, which disqualifies the firm from listing independently on the Hong Kong stock market. Given this, some analysts expect that the company will not seek investment bank help to list overseas any time in the foreseeable future.

What the company could do, however, is acquire China International Airlines, which owns China National Aviation Co., a company that is already listed in Hong Kong. With this alternative, Air China could have China National Aviation Co. as a shell to contain its merged assets and instantly become a public company, reports the Zhongguo Jingying Bao (China Business).

Air China has asked CITIC Securities to guide the company through merger and reorganization. CITIC Securities beats out eight other international investment banks that had hoped to reorganize the giant air carrier group.

Air China remains the only major air group of the three that were reorganized that has not listed. In May, it invited a number of Chinese securities companies and eight international investment banks, including HSBC Holdings, JP Morgan Chase & Co., Goldman Sachs Group, Merrill Lynch & Co., Credit Suisse First Boston Corp., UBS Warburg, BNP Prime Peregrine Inc. and Bank of China International, to advise the company on reorganization, future listing possibilities and capital accumulation, the story said.

The Civil Aviation Administration of China (CAAC) has long hoped to list Air China. The CAAC announced in April that 10 Chinese airlines should be consolidated into three, namely, Air China, China Eastern Airlines and China Southern Airlines.

China International Airlines, parent company of the China National Aviation Co., also has China Southwest Airlines flying under its banner. Air China's assets reach 56.05 billion yuan (US$6.77 billion), making it the largest airlines in China. Following reorganization, China Southern Airlines assets are 50.1 billion yuan (US$6.05 billion) and China Eastern Airlines, 47.3 billion yuan (US$5.71 billion).

But according to investment bankers, since Air China lacks the prerequisite three consecutive years of profits, it fails to meet the requirement to list on the Hong Kong exchange. These observers predict that the company will probably place profitable assets in the China National Aviation Co., which is already listed in Hong Kong, thus realizing the goal of getting listed by buying a shell. Most of the company's international air routes operate at losses. The only profitable routes are some domestic air routes and some other domestic air routes that will be acquired.

China Eastern Airlines has already completed the acquisition of stock equity belonging to Great Wall Airlines, raising the possibility of a merger. It is agreed that Eastern Airlines will pay 428 million yuan (US$51.69 million) over several years, with an annual payment of 3 million yuan (US$362,319).

The reorganization of all three major airlines groups is expected to be completed by early next year, the story said.

( 06/20/2001)

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