As part of a US$5 billion recapitalization package which the airline announced on Tuesday this week, Cathay Pacific has made it clear it intends to repay the Hong Kong government for US$2.52 billion of preference shares within five years.
According to Reuters news agency, the notes carry a coupon rate of 3% for the first three years, rising to 5% in year four, 7% in year five and 9% in year six, giving the airline an incentive to redeem them. “We would certainly be expecting to repay that over a 3-5-year period,” Chief Financial Officer Martin Murray said in an analyst briefing posted to the airline’s website late on Tuesday. The total package also includes a US$1.5 billion rights issue to current shareholders including Swire Pacific Ltd Air China Ltd and Qatar Airways, which would more than halve the airline’s gearing levels. “That in turn restores access to both the equity and debt market and allows us to tap that market later in the year or next year for equity and debt,” Murray added.
The Hong Kong government could obtain a 6% stake in Cathay via US$252 million of warrants convertible to shares, though its Finance Secretary, Paul Chan, confirmed on Tuesday it was not the government’s intention to remain a long-term shareholder in Cathay Pacific. Swire owns 45% of Cathay and has agreed to remain a controlling shareholder for as long as the government owns preference shares, or any amount of a HK$7.8 billion bridging loan remains outstanding.
