China Southern To Get Cash Injection

June 12, 2012

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China Southern Airlines said it would get a cash injection of up to CNY2 billion yuan (USD$314 million) from its state-owned parent, to help lower debt amid global economic uncertainty and high fuel costs.

The Guangzhou-based carrier would place 465.12 million new 'A' shares at 4.3 yuan each with its parent, China Southern Air Holding Company, in exchange for the capital, it said in a statement to the Hong Kong stock exchange.

Chinese airlines have been expanding their fleets rapidly in the past few years to keep pace with high demand growth in the world's second largest aviation market, leaving carriers with high levels of debt.

With a fleet of more than 440 aircraft and 190 aircraft on order to be delivered between 2012 and 2016, China Southern had capital commitments of CNY65 billion yuan at the end of 2011, mostly related to the acquisition of aircraft and flight equipment.

The cash injection came after the chairman of its domestic rival China Eastern Airlines said it aimed to cut its debt-to-asset ratio to below 70 percent by the end of 2015 via fundraising in the markets and capital injections.

China Southern said it would use the money from the new shares to repay bank loans and for working capital.

Net debt was CNY75.8 billion yuan at the end of 2011, taking its ratio of net debt to total equity to 201 percent last year compared with 211 percent in 2010.

Priced at a discount of 8.12 percent to the stock's last close of 4.68 yuan per share in Shanghai on June 4, the new shares will be issued within six months after obtaining regulatory approvals, the company said.

In Hong Kong, its shares have fallen 11 percent this year, lagging a 2.8 percent rise on the blue-chip Hang Seng Index.

The injection came after two similar moves in 2009 and 2010, with a total of around CNY13 billion yuan, after the carrier suffered heavy losses in 2008 during the financial crisis.

Air China has said it plans to issue CNY1.05 billion yuan worth of new A shares to controlling shareholder, China National Aviation Holding Company, to reduce bank borrowing and for working capital.