Hong-Kong-based global carrier Cathay Pacific which had suffered a 96% cut in capacity during the Cvid-19 crisis has secured a massive HK$39 recapitalisation financing from Hong Kong government. The June 9th,2020 announcement has brought to light a three tranches plan
Tranche A: issuing HK$19.5 billion worth of special shares to Hong Kong Special Administrative Region (HKSAR) Government Hong Kong government could gain a 6% stake in Cathay via HK$19.5 billion of warrants convertible to shares
Tranche B: HK$11.7 billion rights issue of shares to existing shareholders. As indicated by the Nikkei Asian Review; Swire Pacific Limited will maintain its 45% stake in Cathay’s common stock. Air China will remain at 29.99% and Qatar Airways at 9.99%
Tranche C: HK$7.8 billion bridge loan facility provided by Hong Kong Special Administrative Region while according to Reuters the carrier expects to repay the Hong Kong government for HK$19.5 billion ($2.52 billion) of preference shares over a three to five year period (coupon rate of 3% for the first three years, rising to 5% in year four, 7% in year five and 9% in year six)
The announcement which initially triggered Cathay Pacific stock to trade up 19% in Hong Kong Stock Exchanges later fell to 1.02% of its closing value the day before. Critics have pointed out that such a massive issue of warrants would trigger a 43% dilution of shares hence generating tremendous downward pressure on the company’s market value.
As new part owner of Cathay Pacific with a 6% preferred equity stake, Hong Kong’s regional government will be allowed to seat two observers on the board of the airline.