Cathay Pacific plans HK$6.74 billion debt sale

Cathay Pacific HK by Matt Driskill

Use this oneHong Kong flag carrier Cathay Pacific Airways announced Thursday (28 January) that it would issue HK$6.74 billion ($870 million) in convertible bonds to help the airline survive the downturn in aviation caused by the COVID-19 pandemic. The five-year bonds have an initial conversion price of HK$8.57 a share, a 30 percent premium to its last closing price before the issue was announced and will carry a coupon rate of 2.75 percent, the airline said in an announcement to Hong Kong’s stock exchange.

Cathay on Monday warned passenger capacity could be cut by about 60 percent, cargo capacity would fall by 25 percent and its monthly cash burn would rise if Hong Kong enacts new COVID-19 measures that would require flight crew to quarantine for two weeks upon their return home, according to various media reports. The airline said the expected move would increase monthly cash burn by around HK$300 million to HK$400 million, on top of the current HK$1 billion to HK$1.5 billion. Assuming full conversion of the bonds and the Hong Kong government’s exercise of warrants, top shareholder Swire Pacific’s stake in Cathay will be diluted to 37.9 percent from 45 percent and Air China’s stake will fall to 25.3 percent from 30 percent, according to the stock exchange filing.

Airlines like Cathay Pacific have had to ground hundreds of planes and slash capacity as international travel has ground to a virtual halt. (PHOTO: Shutterstock)

Cathay Pacific, which shut its Cathay Dragon unit last year and made 5,900 jobs redundant to save HK$500 million every month, said on Monday it may have to axe a quarter of its profitable cargo capacity because a 14-day quarantine and seven-day medical surveillance proposed by Hong Kong’s government would force it to cut its flight capacity by almost two-thirds. Cathay Pacific raised HK$39 billion last year, with a HK$27.3 billion financial lifeline by Hong Kong’s government, to survive the pandemic.

Cathay is also coming under fire for its plans to quarantine flight crews for 14 days, as Cathay Pacific Airways told staff the rule could start after 11 February. In a memo to employees, reported by the South China Morning Post, Chris Kempis, the airline’s director of flight operations, said Cathay was waiting for confirmation on when the new measures would take effect. While officials have yet to announce finalised plans, the International Air Transport Association (IATA) expressed grave concern over the damage the measure could inflict. The association called for the government to treat Hong Kong-based aircrew as essential workers and make them a “top priority” for Covid-19 vaccinations. “We are a bit worried about this potential new measure for the crew in Hong Kong and particularly because the Hong Kong aviation sector is already fragile,” said Alexandre de Juniac, the director general of the International Air Transport Association.

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