Shanghai Airlines will raise 1 billion yuan ($146 million) by issuing non-public shares to Jin Jiang International Holdings Co Ltd, currently its third largest shareholder, the carrier announced on Wednesday. This is a move aimed at lowering its high debt-to-equity ratio, currently at just over 90 percent.
The airline said Jin Jiang International would inject nearly 1 billion yuan into the company in a swap deal that would see the latter getting 220 million additional shares in the Shanghai-listed carrier.
With the deal, Jin Jiang International would overtake Bank of China Group Investment Ltd as its second largest shareholder, next only to Shanghai Lianhe Investment Ltd, which holds 35.73 percent stake in the airlines.
"This money would help lower Shanghai Airlines' debt-to-equity ratio by 5.9 percent, to 85.45 percent, and shore up its operational cash flow," said Li Lei, an analyst with CITIC China Securities.
Xu Junmin, board secretary, Shanghai Airlines, told China Daily that there was yet time before the airline got hold of the money from Jin Jiang. "The proposal needs to get approval at the shareholders' meeting on March 13. It needs the go-ahead from the China Securities Regulatory Commission afterwards," Xu said.
In January, Shanghai Airlines said its losses for 2008 may touch 870 million yuan, up 100 percent year-on-year.
Analysts have also taken a dim view of the reported unification of Shanghai Airlines with its local rival, China Eastern Airlines.
"Theoretically, a merger will generate a win-win situation as they will be able to share resources and cut costs. But this comes at a bad time. Currently, both sides are grappling with huge losses and are unwilling to merge with someone in the same boat," said Zhang Xun, an analyst at TX Investment Consulting Co.
But the "good news for domestic carriers is that the jet fuel price has tumbled from 8,170 yuan per ton to 5,770 yuan per ton in December. In January, it dropped by another 330 yuan. The sharp fall in fuel cost is crucial, as it accounts for 40 percent of the total daily expenses at China's airlines," Zhang said.
Boosted by the cash injection news, Shanghai Airlines edged up by 2.86 percent before settling at 5.39 yuan a share in Shanghai yesterday.