CA & HX in Talks

Old Mar 9, 20, 8:52 am
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CA & HX in Talks

Per https://www.scmp.com/business/compan...tegic-lifeline, HX and CA are in talk to save HX from bankruptcy. I thought Swire and CA had an agreement that CA cannot be the shareholder of another HKSAR-based carrier. Does anyone else recall this, or did I have the wrong impression? I wonder if CX is involved in the talk as well.
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Old Mar 9, 20, 9:02 am
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I hope this is not a way for China to kill the unloved CX... I'm afraid that this is what they are trying to do after the protest stuff.
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Old Mar 9, 20, 9:16 am
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Originally Posted by mucaari View Post
I hope this is not a way for China to kill the unloved CX... I'm afraid that this is what they are trying to do after the protest stuff.
Agreed this is my fear. But I still trust the shrewd business leadership of Swire, and they are probably actively involved in the background now finding out the latest.
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Old Mar 9, 20, 9:46 am
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Originally Posted by ernestnywang View Post
I thought Swire and CA had an agreement that CA cannot be the shareholder of another HKSAR-based carrier.
Err no. CA promised it won't mount a hostile takeover of CX or allow someone else to do so (without CX's consent), but not to refrain from investing in competitors www1.hkexnews.hk/listedco/listconews/sehk/2006/0706/ltn20060706020.pdf#page=11

While my first impression of the CA takeover of HX was "weird...", I now rationalise it's just really CA probably obtaining the all or majority of HX shares (PPB be damned...). CX (in the ideal case, where minority shareholders' interests are respected) won't share any info flow with CA and CA's shareholding of CX will go totally passive.

Of course, in reality, it's like your long-term domestic partner somehow acquiring a concubine. Complicated.

Last edited by percysmith; Mar 9, 20 at 9:54 am
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Old Mar 9, 20, 10:41 am
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Originally Posted by percysmith View Post
Err no. CA promised it won't mount a hostile takeover of CX or allow someone else to do so (without CX's consent), but not to refrain from investing in competitors www1.hkexnews.hk/listedco/listconews/sehk/2006/0706/ltn20060706020.pdf#page=11

While my first impression of the CA takeover of HX was "weird...", I now rationalise it's just really CA probably obtaining the all or majority of HX shares (PPB be damned...). CX (in the ideal case, where minority shareholders' interests are respected) won't share any info flow with CA and CA's shareholding of CX will go totally passive.

Of course, in reality, it's like your long-term domestic partner somehow acquiring a concubine. Complicated.
The agreement I mentioned was reported today by Apple Daily and also previously by hk01 and Mingpao.

Apple Daily on 09MAR2020 (https://hk.appledaily.com/finance/20...V4QOVG3MYMYIM/):
不過,中國國航現時是國泰(293)的第二大股東,持有後者29.9%股權。根據2018年太古集團披露的 股權協議,包括太古、國航及中信泰富三方股東,均不得投資除國泰、港龍及其附屬公司之外的以香港為基地的航 空公司,或成立以香港為根據地的航空公司,意味國航洽購港航一事或存有暗湧。
hk01 on 03JAN2018 (https://www.hk01.com/財經快訊/146216/國泰股...38480;制):
禁投資其他香港航空公司

此外,協議訂明當時的三方股東(包括太古、中信泰富及國航)均不得投資除國泰、港龍及其附屬公司之外的以香 港為基地的航空公司,或成立以香港為根據地的航空公司。而中信泰富和國航均不會參與國泰及港龍 的日常管理。
Mingpao on 03JAN2018 as well (https://m.mingpao.com/fin/daily2.php...issue=20180103):
國航禁投資其他香港航空公司

股東協議披露,太古擁有國泰董事會內維持大多數席位權力,國泰主席亦會由太古提名,中信泰富及國航均不會參 與國泰及港龍的日常管理,同時言明包括太古、中信泰富及國航三方股東,均不得投資除國泰、港龍及其附屬公司 之外的以香港為基地的航空公司,或成立以香港為根據地的航空公司。按通函及股東協議,亦同時清楚講述,當三 方股東各持股15%或更多時,不會向國泰提出要約。
Indeed the page you referenced didn't mention this, although I was unable to read through the entire document. Could it be a separate agreement?
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Old Mar 9, 20, 4:03 pm
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Originally Posted by ernestnywang View Post
The agreement I mentioned was reported today by Apple Daily and also previously by hk01 and Mingpao.

Apple Daily on 09MAR2020 (https://hk.appledaily.com/finance/20...V4QOVG3MYMYIM/):


hk01 on 03JAN2018 (https://www.hk01.com/財經快訊/146216/國泰股...38480;制):


Mingpao on 03JAN2018 as well (https://m.mingpao.com/fin/daily2.php...issue=20180103):


Indeed the page you referenced didn't mention this, although I was unable to read through the entire document. Could it be a separate agreement?
I missed the 2018 articles.

The 2 January 2018 filing referred to is here https://di.hkex.com.hk/di/NSForm2.as...=MAIN&lang=EN&
The attachments are:
https://di.hkex.com.hk/di/report_ful...0000055384.pdf
https://di.hkex.com.hk/di/report_ful...0000055385.pdf
https://di.hkex.com.hk/di/report_ful...0000055386.pdf

55385 is the 2006 agreement, when CA established the cross-holding.
At the time the cross-holding was established, the shareholders' agreement was not disclosed, only summarised in page 11 of the link I provided above.

The 2 January 2018 is around the same time as the Qatar investment into CX.
I am not sure whether the investment triggered the filing.

Page 11 of the 2006 shareholders' agreement di.hkex.com.hk/di/report_full/2018_01_02/CS20180102E00058/A0000000000000055385.pdf#page=11 established the shareholders' obligation not to invest in any other HK carrier.

Although it did give CA an exception - it can ignore the clause if the CPG requires CA to do so.
The investment in CA doesn't appear to be "required" by the CPG (not explicitly, anyway).

But I wonder what the consequences of the prohibition in investment in other airlines clause will be.
CX can certainly take legal action to block CA from doing so.
But will it?
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Old Mar 9, 20, 7:23 pm
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Originally Posted by percysmith View Post
I missed the 2018 articles.

The 2 January 2018 filing referred to is here https://di.hkex.com.hk/di/NSForm2.as...=MAIN&lang=EN&
The attachments are:
https://di.hkex.com.hk/di/report_ful...0000055384.pdf
https://di.hkex.com.hk/di/report_ful...0000055385.pdf
https://di.hkex.com.hk/di/report_ful...0000055386.pdf

55385 is the 2006 agreement, when CA established the cross-holding.
At the time the cross-holding was established, the shareholders' agreement was not disclosed, only summarised in page 11 of the link I provided above.

The 2 January 2018 is around the same time as the Qatar investment into CX.
I am not sure whether the investment triggered the filing.

Page 11 of the 2006 shareholders' agreement di.hkex.com.hk/di/report_full/2018_01_02/CS20180102E00058/A0000000000000055385.pdf#page=11 established the shareholders' obligation not to invest in any other HK carrier.

Although it did give CA an exception - it can ignore the clause if the CPG requires CA to do so.
The investment in CA doesn't appear to be "required" by the CPG (not explicitly, anyway).

But I wonder what the consequences of the prohibition in investment in other airlines clause will be.
CX can certainly take legal action to block CA from doing so.
But will it?
Maybe CA and CX is closer than imagined. Thay may have talked and agreed on this...

The agreement asks parties to get consent from the other parties when they would like to invest in other HK-based airlines, instead of a total ban. When CX bought UO, I believr they talked about it with CA in advance.
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Old Mar 9, 20, 9:15 pm
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Don't think any sane airline wants to spend the cash to buy a dying non-competitor these days when they've got enough problems to deal with themselves.
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Old Mar 9, 20, 10:36 pm
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No insider info here. Pure speculation.

Typically you can negotiate on such clauses, especially but not limited to if CA divests part or all of interest in CX, or a discontinuation of partnership agreement. Circumstances have evolved since the cross shareholding took place.

At the end of the day a lot of conversations happen. Let's see the result, or the lack thereof, although something should happen with HX, if not HNA as well.
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Old Mar 9, 20, 10:39 pm
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Originally Posted by hkskyline View Post
Don't think any sane airline wants to spend the cash to buy a dying non-competitor these days when they've got enough problems to deal with themselves.
The synergy of doing such is often greater than on the surface and is thoroughly considered. Especially with a strategic like CA but not our personal capital or a financial sponsor not currently in the industry. Many past airlines mergers examples can demonstrate this (although airlines itself is only a hot M&A field during certain times).
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Old Mar 10, 20, 10:23 am
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Originally Posted by Reply1984 View Post
Maybe CA and CX is closer than imagined. Thay may have talked and agreed on this...
I would lean on this, too. Could it be that CX and CA agreed to have CA take over HX, but HX will no longer compete with CX? Sort of going back to the relationship CX and KA had from the 1990s to early 2000s.
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Old Mar 10, 20, 11:23 am
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Originally Posted by PacificSunrise View Post
The synergy of doing such is often greater than on the surface and is thoroughly considered. Especially with a strategic like CA but not our personal capital or a financial sponsor not currently in the industry. Many past airlines mergers examples can demonstrate this (although airlines itself is only a hot M&A field during certain times).
Which bank is willing to finance the M&A in this environment?
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Old Mar 10, 20, 11:26 am
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The consumers in HK benefit greatly with a viable competitor to CX. In that sense, HX should survive. It is not cheap to start another full service airline in HK. The question is who HX goes to in the end. Certainly no consumers would like it to be CX.

I would say CA is not a bad choice. And probably only buyers are from mainland China.
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Old Mar 11, 20, 8:50 am
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Originally Posted by hkskyline View Post
Which bank is willing to finance the M&A in this environment?
Air China will probably use a Chinese bank to finance the transaction. Although this deal would require some socializing with the government.
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Old Mar 11, 20, 10:18 pm
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Originally Posted by PacificSunrise View Post
Air China will probably use a Chinese bank to finance the transaction. Although this deal would require some socializing with the government.
I doubt they can even get through the door. Airlines are suffering from this outbreak and i won't be surprised if they start running into liquidity problems with so many parked planes and empty planes flying around. So they will need to beg for a credit line just to manage their daily operations. Don't think an expensive M&A would be on the table now when working capital is at risk. I also don't think the banks have any credit appetite to entertain any pet projects on the side.

The central government may end up forcing HU to fold into an existing big 3 player, but anything extra on the periphery would not be part of it and gets stripped down/sold out so not to worsen the buyer's credit profile even further.
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