$5bn bailout saves Cathay Pacific

The financially battered Hong Kong airline Cathay Pacific said it would probably have collapsed without the government-led bailout. (AP)
Short Url
Updated 10 June 2020

$5bn bailout saves Cathay Pacific

  • The government said it stepped in to protect Hong Kong’s status as an international transport hub

HONG KONG: Troubled Hong Kong airline Cathay Pacific announced a HK$39 billion ($5 billion) government-led bailout plan on Tuesday amid a crippling downturn caused by the coronavirus.

Like many carriers hammered by the crisis, the company has seen passenger numbers evaporate in recent months, leaving most of its fleet sitting on the tarmac and the firm haemorrhaging cash.

The airline was already under pressure after taking a hit from months of protests in Hong Kong last year that battered tourism.

On Tuesday the carrier announced a sweeping proposal to inject liquidity and keep it afloat with the help of Hong Kong’s government, which will take a small stake in the firm.

“Quite frankly, without this plan the alternative would have been a collapse of the company,” Cathay chairman Patrick Healy told reporters.

The bulk of the capital will come from new shares issued to Aviation 2020, a company owned by the government, as well as a HK$7.8 billion bridge loan also from the government.

Under the proposal, Cathay will raise about HK$11.7 billion in a rights issue on the basis of seven rights shares for every 11 existing shares held, while preference shares will be sold to the government for HK$19.5 billion and warrants for HK$1.95 billion, subject to adjustment.

Share trading in Cathay Pacific — and its two biggest shareholders Air China and Swire — was suspended in Hong Kong on Tuesday morning ahead of the announcement. They will resume trading on Wednesday, Cathay said.

Swire, a Hong Kong and British conglomerate with colonial-era roots, has a 45 percent stake in Cathay while Air China owns 30 percent.

Once the recapitalization plan is complete, Aviation 2020 will take a 6 percent stake, while Swire’s shares will be reduced to 42 percent and Air China’s to 28 percent.

Aviation 2020 will also be allowed to send two “observers” to attend board meetings.

The South China Morning Post newspaper reported it is the first time Hong Kong’s government has directly injected money into a private company.

Finance Secretary Paul Chan said the government acted to protect Hong Kong’s status as an international transport hub after Cathay approached them for help.

“We expect the investment to last three or more years as we at least need to wait for the pandemic to pass,” he told reporters, adding that he expected a reasonable return for taxpayers.

“The government will not take part in the company’s daily operations,” he said, with the two observer board members having no voting rights.

Cathay said its executives had also agreed to pay cuts, while all staff would be asked to take three weeks unpaid leave over the next six months — a second time they have been asked to do so.

Before the pandemic struck, Cathay was one of Asia’s largest international airlines and the fifth largest air cargo carrier globally.

While its cargo business has kept going, Cathay has no domestic demand to fall back on — unlike many other big airlines.

Healy said Cathay went into the year with some $20 billion in reserves, but the company was now burning through $2.5-3 billion a month.

Cathay also found itself punished by Beijing last year when some of its 33,000 employees expressed support for Hong Kong’s pro-democracy protests. It led to the replacement of the airline’s CEO and chairman as Cathay scrambled to placate Beijing, while unions complained some staff were sacked for their political views.

Many other major airlines have scrambled to secure loans, raise capital or seek bailouts, including Singapore Airlines, Korean Air, the three big US airlines and Lufthansa.


Oil world tries to read Chinese post-pandemic demand

Updated 25 October 2020

Oil world tries to read Chinese post-pandemic demand

  • The economic outlook for Asia will help decide some pretty pressing short-term policy issues
  • China’s refineries are getting back in top gear, and are looking to increase crude purchases in anticipation of economic recovery

DUBAI: While all eyes are on the US presidential election, the energy sector is keeping a watchful scrutiny on what is happening on the other side of the world, in China and the rest of Asia. Who the Americans choose will of course have enormous influence on energy policy for years to come, not least because Donald Trump versus Joe Biden is, in many ways, a runoff between the traditional oil and gas industry and the alternative renewable future.

But policymakers in the Middle East and in the broader OPEC+ alliance led by Saudi Arabia and Russia are looking eastward to determine more immediate priorities. The economic outlook for Asia, and of China in particular, will help decide some pretty pressing short-term policy issues.

At what official selling price should big producers such as Saudi Aramco and Adnoc mark their exports to China in the coming weeks? What stance should OPEC+ take toward compliance and compensation for the rest of this year? And, crucially, should it press ahead with plans to put an extra 2 million barrels per day (bpd) of oil on global markets in January, as the historic April cuts deal envisaged?

An added variable has been thrown into the works with higher-than-expected output from Libya, which has resumed production and exports from its war-torn facilities and could, according to some energy experts, be producing another 1 million barrels by the end of the year.

That is hardly a deluge of crude by global standards, in a world that consumes above 90 million bpd, though it is enough to complicate the already-delicate calculations of OPEC+ analysts.

But the big imponderable is China. The country blew hot and cold on oil imports since the April crisis, snapping up cheap oil one month and easing back on imports the next. It was hard to read the signals coming out of China.

Were the pauses in imports due to a slower rate of recovery from the pandemic economic lockdowns? Or was China simply chock-full of crude, to the extent that it had filled its strategic reserve and had nowhere else to store it?

Evidence of the latter came in the form of the flotilla of crude tankers waiting to unload off the coast of the Shandong oil terminal. At one stage, there were as many as 60 million barrels afloat awaiting discharge off China’s coast.

The people who make a living from tracking these things say that there has recently been evidence of a slow unloading from these ships, but that there is still an awful lot of crude afloat, waiting to come onshore.

There have also been signs that China’s refineries are getting back in top gear, and are looking to increase crude purchases in anticipation of economic recovery. One of the biggest, Rongsheng Petrochemical, recently snapped up 7 million barrels through Singapore, in a move taken by some to be the starting gun on an aggressive Chinese buying spree.

The economic logic suggests that if that is going to happen, it will take place pretty soon. According to the International Monetary Fund’s latest review, China — the only major economy forecast to grow in 2020, with 1.9 percent growth — will soar to 8.2 percent expansion next year. The country’s early and rigorous lockdown, and high levels of economic stimulus since then, are clearly paying off.

Whether the Chinese lift-off comes in time to affect OPEC+ calculations over the planned January increase remains to be seen. From where oil policymakers are looking at it at the moment, it looks like a good bet that China, at least, will need plenty of crude next year to fuel its post-pandemic recovery.