Caixin
Oct 13, 2020 04:38 AM
BUSINESS & TECH

China Eastern Gets $4.6 Billion Capital Injection From New Investors

The capital injection will help China Eastern to ease its debt burden
The capital injection will help China Eastern to ease its debt burden

China Eastern Airlines Co. Ltd, the parent of one of the country’s largest air carriers, will get a capital injection of 31 billion yuan ($4.6 billion) from four new state-backed investors as the central government-owned airline diversifies its shareholding structure.

China Life Investment Holding Ltd., an investment arm of state-owned insurer China Life Insurance Co., will invest 11 billion yuan for an 11.3% stake in China Eastern, while Shanghai government-backed Shanghai Jiushi Group is paying 10 billion yuan for 10.3% of the airline, China Eastern said Monday in a statement.

Two other central government-owned companies, China Reform Holdings Corp. and China Tourism Group, will invest 5 billion yuan each for 5.2%, the company said.

After the four new investors acquire almost a third of China Eastern’s equity, the central government’s state-asset administrator will remain the ultimate controlling shareholder of China Eastern, the company said.

The capital injection will help China Eastern to ease its debt burden, especially at a time when global airlines are suffering through a business slump caused by the Covid-19 pandemic. It is also part of China’s long-term efforts to diversify ownership of state-owned enterprises under so-called mixed-ownership restructuring, intended to invigorate state-controlled sectors.

By the end of 2019, China Eastern had a debt-to-assets ratio of 75.5%, higher than its state rivals Air China and China Southern Air Holding Co. In the first half this year, China Eastern’s core business unit China Eastern Airlines Co. reported a net loss of 8.5 billion yuan as flights were grounded amid the pandemic. Air China also booked a loss of 9.4 billion yuan, and China Southern Airlines, a loss of 8.2 billion yuan.

China Eastern will deploy the new capital to boost its core business, the company said. The air carrier also pledged to enhance business cooperation with the new investors in areas such as aviation insurance, transport infrastructure and tourist services.

The new shareholders such as duty-free retail operator China Tourism Group are expected to help China Eastern expand its business range to broader travel-related areas, said Yu Zhangfu, a partner in management consultant Roland Berger's Beijing office.

The new investment makes China Eastern the second centrally owned airline to carry out a mixed-ownership restructuring at the group level. China Southern last year said it would receive a capital injection of 30 billion yuan from three state-backed investors. Larger rival Air China also launched an ownership revamp at its cargo service unit in 2018.

China Eastern started testing ownership restructuring at its noncore subsidiaries in 2017 when it offered 55% of its logistics unit to private investors including Legend Holdings Co., Global Logistics Properties, Deppon Express and Greenland Holdings Co. Ltd. in preparation for a public listing of the logistics unit.

In 2019, China Eastern sold 65% of its tourism service subsidiary Shanghai Airlines Tours International (Group) Co. to Greenland. It also introduced online travel agency Trip.com Group and U.S. carrier Delta Air Lines as shareholders of Shanghai-listed China Eastern Airlines.

Caixin learned that China Eastern is also pushing forward ownership changes in its budget carrier China United Airlines Co. and its aviation food service unit.

Contact reporter Han Wei (weihan@caixin.com) and editor Bob Simison (bobsimison@caixin.com).

Download our app to receive breaking news alerts and read the news on the go.

You've accessed an article available only to subscribers
VIEW OPTIONS
Share this article
Open WeChat and scan the QR code