Domestic

7b-yuan injection into China Eastern given greenlight

By Zhang Jiawei (chinadaily.com.cn)
Updated: 2009-06-24 15:19

China Eastern Airlines Corp confirmed in a statement on Tuesday that regulators have approved its parent company China Eastern Air Holding's request to inject 7 billion yuan ($1.02 billion) into the airline.

When the injection is completed, China Eastern Holding will boost its stake in the subsidiary to 74.64 percent, nearing the 75 percent limit, according to China Business News. That would mean a recent 2-billion-yuan government funding the parent company got is unlikely to be injected into the carrier again.

The debt-ridden airline still faces difficult times ahead even with the 7-billion-yuan injection. It saw a record-high loss of nearly 14 billion yuan and an 11.59 billion yuan gap between its assets and liabilities last year.

Company executives told the newspaper that the carrier will also seek to issue additional shares to domestic and overseas investors to further cut its asset-liability ratio to less than 90 percent, apart from a bid to take over Shanghai Airlines.

China Eastern has proposed taking over Shanghai Airlines through a share swap, finalizing the long-anticipated merger between the two struggling State-owned carriers, a person familiar with the situation said Monday.

The share swap plan has almost been set with China Eastern to exchange shares with Shanghai Airlines at a ratio of 1 to 1.3, or 5.28 yuan for each China Eastern share and 5.50 yuan for each Shanghai Airlines share. The prices represent the average of the companies' share prices in the 20 trading sessions before their stocks were suspended from trading on June 8.

However, China Eastern's asset-liability ratio cannot be further reduced if it just considers a merger with Shanghai Airlines, analysts said.

"China Eastern can create room for issuing additional shares worth 6 billion yuan to major shareholders, based on the share swap ratio of 1 to 1.3 and the last closing price of its shares at around 5 yuan," said the newspaper, citing an unnamed analyst.

Public offerings of China Eastern on the mainland and foreign markets are also available, but the effect is hard to tell amid the current market situation, the analyst added.

Trading of the companies' shares is likely to resume early next month when detailed plans for restructuring and reducing asset-liability ratio are released, the paper said.