Cathay plans to raise $5 billion from Hong Kong government

Bloomberg

Cathay Pacific Airways Ltd became the latest global carrier to seek a lifeline in the aftermath of Covid-19 travel restrictions, outlining a plan to raise HK$39 billion ($5 billion) from the Hong Kong government and shareholders after months of warnings about the frailty of its business.
The rights issue proposal, reported by Bloomberg News, is on the basis of seven rights shares for every 11 existing shares held and would raise about HK$11.7 billion, Cathay said in a statement to the Hong Kong stock exchange. The preference shares will be sold to the government for HK$19.5 billion along with HK$1.95 billion of warrants, subject to adjustment.
Aviation 2020 Ltd, a Hong Kong government-connected entity, is extending a HK$7.8 billion bridge loan. The government will own 6.08% of Cathay through Aviation 2020 after the deal.
“Cathay Pacific has explored available options and believes that a recapitalisation is
required to ensure it has sufficient liquidity to weather this current crisis,” the airline said in the statement.
Carriers around the world have been searching for funds after the coronavirus wiped out passenger demand and grounded fleets. Governments have devoted more than $85 billion to propping up airlines, including the major US carriers and Germany’s Deutsche Lufthansa AG, which secured about $10 billion in state support. Even so, global air traffic may only get back to 50% to 60% of usual levels by year-end.
Cathay and main shareholders Swire Pacific Ltd and Air China Ltd suspended trading on Tuesday, pending the announcement. Hong Kong Financial Secretary Paul Chan was expected to hold a news conference at 3 pm Hong Kong time on the investment “to uphold Hong Kong’s status as an international hub,” the government said.
Cathay and Swire Pacific applied to resume trading on Wednesday. Shares are expected to fall, said Kelvin Lau, an analyst at Daiwa Capital Markets Hong Kong Ltd. “The rights issue will have a dilution effect and that’s going to be reflected in share prices when trading resumes,” Lau said. Cathay also will implement another round of executive pay cuts and a second voluntary leave programme for employees. The airline is losing cash at a rate of as much as HK$3 billion a month since February.
Even before the pandemic, Cathay was under enormous financial and political strains as it found itself caught up in the Hong Kong anti-government protests, which affected traffic numbers and led to the exit of the company’s former CEO.