Wed, Jul 23, 2003 - Page 10 News List

Government plans to sell a 36 percent stake in CAL

By Annabel Lue  /  STAFF REPORTER

The majority shareholder in the China Airlines Co (華航) confirmed yesterday that it plans to sell a 36 percent stake in the state-run carrier to strategic investors by the end of the year. But analysts said they're worried that potential investors may be not be willing to ante up the cash for the sale.

As part of government efforts to privatize the airline, the sale will reduce the China Aviation Development Foundation's (航發會) management control over the carrier and allow new investors to sit on the airline's board, Lin Chun-Cheng (林純正), chief secretary of the foundation, said yesterday.

The fundation has a stake of 71 percent in China Airlines.

"We have selected Taiwan International Securities Corp (金鼎 證券) as an underwriter to handle the sale," Lin said. "Taiwan International will propose share sale details in mid August and we will put things into process right after that."

In April, Lin Ling-san (林陵三), minister of transportation and communications and also chairman of the foundation, said that the government plans to sell its remaining 71 percent stake in China Airlines by the end of 2005.

To fulfill that goal, the foundation has proposed a two-stage share-release plan. It plans to sell 36 percent, or 915 million shares, to investors such as international airlines in the initial stage, Lin Chun-Cheng said.

Based on the carrier's NT$13.75 closing prices on the TAIEX yesterday, the sale could gross over NT$13 billion.

Eventually, the foundation plans to pull out of the airline's management entirely.

"In an effort to upgrade China Airlines' operational efficiency, we plan to put the management helm in investors' hands," Lin said.

Foreign airlines or companies with strong management skills would be ideal investors, therefore rival EVA Airlines Corp (長榮航空), the nation's second largest carrier, has been excluded from the deal, Lin said.

The foundation will release another 35 percent, or 899 million shares, to individual investors and to China Airlines' employees during the secondary privatization stage. That sale is expected to be completed by 2005.

Shares are expected to sell for somewhere between current market prices of NT$14 and the carrier's projected net-asset value of NT$18 per share, Lin said.

One industry watcher said the proposed price is reasonable.

"Compared to the NT$30 per share China Airlines targeted when they first initiated privatization years ago, the NT$18 offer is attractive," said Wang Teng-cheng (王登城), a analyst at Yuanta Core Pacific Capital Management Co (元大京華投顧).

As early as 1998, the government moved to privatize China Airlines, but the plan was postponed several times because of sluggish stock prices following several fatal crashes.

The carrier has reported 10 fatal accidents since 1970, the most recent being the mid-air explosion last May of a passenger plane on route to Hong Kong, which killed everyone on board.

Wang said that regional airlines will probably be interested in buying China Airlines shares.

Asian carriers would boost sales, upgrade operational efficiency and lower average flight costs by integrating themselves with China Airlines, Wang said.

However, with most airlines reporting a loss in the second quarter, they may have difficulty finding ready cash, he said.

"The government wants to sell the shares for cash, not swap them for stock, because it needs cash to cover government deficits," Wang said.

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