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Singapore Airlines, Temasek in landmark deal with China Eastern
2007-11-09
Singapore Airlines and the city-state's Temasek Holdings have signed a final agreement to buy 24 percent in China Eastern Airlines, the nation's third-largest carrier, the firms said Friday. The agreement is seen as a key move in the battle for Shanghai, a city with a population of 17 million which, next to Beijing, is the most important aviation hub in the rapidly expanding Chinese market. "We believe this partnership... will build on (China Eastern's) strengths to enhance its competitive advantage in the growing China aviation market," Ong Beng Teck, Temasek's managing director of investment, said in a statement. He added that the transaction would contribute to China Eastern's "financial and operational performance on a sustainable basis." It was the first time a foreign carrier took a share in a major state-controlled airline company in China, and analysts said it could herald further changes in the industry. "Consolidation in domestic aviation is an inevitable trend," said Xia Fulu, a Shanghai-based analyst with Industrial Securities. "The deal will make Air China even more willing to consolidate with other players, and give it more pressure to do so," he said. The Singaporean national carrier and state-linked investment firm Temasek will inject a combined 7.16 billion Hong Kong dollars (920 million US) into the struggling Chinese airline to buy nearly 1.9 billion new shares in the firm, according to a statement filed with the Hong Kong stock exchange. Singapore Airlines, majority-owned by Temasek, will buy 1.235 billion shares for a 15.7 percent stake and Temasek 649 million shares for an 8.3 percent slice at 3.8 Hong Kong dollars per share. The deal is expected to make it easier for China Eastern to obtain future financing, while the carrier will also learn from Singapore Airlines' management experience, analysts said. "China Eastern's financial structure will improve noticeably after it receives the proceeds from the deal," said Feng Zhigang, a Shanghai-based analyst with Guotai Junan Securities. He said the new financing would reduce its debt-to-assets ratio to 79.94 percent from 93.79 percent as of the end of June 2007, lowering its future financing expenses. The strategic cooperation agreement between Singapore Airlines and China Eastern sets out areas of cooperation, including flights, operations, service, procurement marketing and training. "China Eastern will see significant improvement in management, service and brand image," said Xia of Industrial Securities. "The deal will also help it take advantage of Singapore Airlines' well-developed global flight network, boosting its revenue and profitability." The agreement was signed six weeks after a rival bid for China Eastern launched by Hong Kong-based Cathay Pacific and flag carrier Air China was abandoned. China Eastern Holdings, the airline's state-owned parent company, will also buy 1.1 billion new shares, worth 4.2 billion Hong Kong dollars, under the deal announced Friday. The holding company's stake in China Eastern will be cut to 51 percent from 59.7 percent. Singapore Airlines will be entitled to nominate two members of the carrier's 14-member board and Temasek one. Temasek Holdings is one of the largest investment firms in Asia, with a diversified portfolio worth 108 billion US dollars.
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