Shanghai Airlines to get CNY1 billion capital injection

Shanghai Airlines is expected to receive a CNY1 billion ($146 million) capital injection through the issuance of a nonpublic stock offering to Jinjiang International Holding, its third-largest stakeholder.

The move is designed to reduce SAL's debt ratio and relieve some pressure as its financial situation worsens (ATWOnline, Feb. 6). The carrier said its debt ratio will fall 5.9 points to 85.5% as a result. Last month it warned that its 2008 loss may be double the CNY435 million reported in 2007.

"Judging from current operating conditions, the company expects to continue facing relatively heavy operating pressures and financial difficulties into the first quarter of 2009," SAL said in a statement released by the Shanghai Stock Exchange. The carrier said it suffered an CNY8.5 million cash loss on its fuel hedge contract as of Dec.31, 2008, while the full-year writedown totaled CNY170 million.

SAL will circulate some 222.2 million shares for Jinjiang at CNY4.5 per share, increasing Jinjiang's stake from 7.9% to 23.6% and making it the second-largest shareholder behind the municipal government's Shanghai Lianhe Investment Co. with 29.6%.

SAL Chairman Zhou Chi said in December that the airline was seeking capital from the Shanghai government. Jinjiang's controlling shareholder is the Shanghai municipal government. SAL Board Secretary Xu Junmin said the stock plan requires approval at a March 13 shareholders conference.

Meantime, China Eastern Airlines shareholders approved a CNY7 billion capital injection Thursday. Industry insiders have noted that the government money paves the way for a merger between CEA and SAL. The airlines' respective financial problems have delayed a tie-up. CEA Chairman Liu Shaoyong told reporters yesterday that it has agreed to sell a 35% stake in Joy Air to majority-owner AVIC. It will continue to hold 5% of the regional (ATWOnline, Feb. 5).

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