Airline's share sale rejected

By Jin Jing (China Daily)
Updated: 2008-01-09 10:02

China Eastern Airlines (CEA) said yesterday that it would not merge with, or become a strategic partner of, Air China despite its failure to secure shareholders' support for a proposed sale of a major stake to Singapore Airlines (SIA).

In a rare show of shareholder power in Chinese companies - at a three-hour extraordinary general meeting (EGM) yesterday afternoon - 77.6 percent of CEA shareholders rejected the management's attempt to sell a 24 percent stake to SIA and Lentor investment Pte Ltd, a wholly owned subsidiary of Singaporean government investment company Temasek.

On September 2 last year, CEA signed an agreement to sell a combined 24 percent stake to SIA and Temasek at HK$3.80 per share.

But last Sunday, China National Aviation Corp (CNAC) - the parent company of Air China Ltd - which already owns 12.07 percent of CEA, announced that it was willing to make a higher offer of HK$5 a share.

In yet another twist to CEA's equity restructuring saga, its chairman Li Fenghua told a press briefing after the EGM that since CEA and Air China are "at the same level in terms of operation, management and market performance," the company has no reason to consider embracing the latter as a strategic partner "no matter how high a price it can offer".

However, CNAC had clearly thrown a wrench into the proposed Singapore deal by making the latter's offer appear less attractive. CEA's Li admitted that the voting result was within his expectations because a vast number of shareholders who had previously supported the deal had changed their mind since the CNAC offer.

An EGM attendee, surnamed Ji who claimed to own 600,000 CEA H shares, told China Daily that he thinks SIA's offer price was too low and unfair to minority shareholders.

Yang Peng of Rongtong Fund Management Co Ltd, which claims to be the third-largest owner of CEA's circulating shares, said that he also voted down the deal and wanted the company to consider CNAC's higher offer.

SIA was quick to express disappointment over the scuppering of its CEA investment plan.

But it said it "will continue to support the building of a relationship with China Eastern, noting that the airlines are still mutually willing to develop the relationship".

CEA's Li also said the company "will further study the possibilities for the alliance with SIA and also consider shareholders' suggestions".

CNAC, meanwhile, promptly announced plans to submit a formal offer to CEA in two weeks following the EGM decision.

But CEA's Li stressed that the offer price was not going to be a major obstacle. "If SIA raises its price, CNAC may follow suit by offering an even higher price. But that would not be an effective way to solve the problems facing us," he said.

He added that his company would mull over further plans to act against the CNAC bid, although he declined to release further details.

Analysts said that yesterday's voting result was not unexpected because of CNAC's higher offer price. Air China will try desperately to gain a leading position in such an important international aviation hub as Shanghai, they pointed out.

CEA accounts for 35 percent of the aviation market in Shanghai, followed by Shanghai Airlines (18 percent) and Air China (12 percent).

But "Air China's market share is expected to soar to 50 percent if it succeeds in merging with CEA," said Zheng Qingping, an analyst at Tebon Securities.

"All major airline companies are striving to expand their market share in Shanghai," he added.

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