Cash-strapped Far Eastern Air Transport Corp (FAT, 遠東航空) could finalize its NT$5 billion (US$164.3 million) recapitalization plan as early as next week if the board of Kinmen Kaoliang Liquor Inc (金酒公司) agrees to inject NT$2.2 billion, or NT$1 per share, for a fully-diluted 40 percent controlling stake, executives of both companies said yesterday.
However, the liquor company, which is owned by the county government, laid out two deal-breakers: if it failed to secure either a controlling stake or rights to appoint new management at FAT, including its chairman, president and chief financial officer, Kinmen Liquor chairwoman Joanna Lei (雷倩) said yesterday in a telephone interview.
“FAT has long been an underfunded company, but its financial crisis could be solved immediately with our proposed capital injection,” Lei said, adding that the company had conducted a risk assessment before Thursday’s board meeting.
The deal is still pending final approval from the Kinmen County Council, which is slated to review the liquor company’s financial assessment reports early next week before voting on the local government’s reinvestment plan next Thursday.
Kinmen Liquor’s reinvestment proposal aims to keep FAT flights between Taipei and the outlying island from being discontinued to prevent transportation problems for Kinmen residents.
Extending the airline’s warmest welcome, FAT spokesman Hanson Chang (張有朋) yesterday said the company was grateful for the capital injection plan proposed by Kinmen Liquor, which in late February became the first company to express willingness to bail the airliner out of debt.
“We look forward to facilitating the recapitalization deal,” he said.
However, Chang said Kinmen Liquor was not the only interested suitor, since several other firms, including foreign investors, had expressed an interest in taking up a controlling stake in the carrier.
“We will carefully coordinate among potential investors to complete the private replacement deal,” he said.
The likelihood of a foreign investor taking up a controlling stake on its own appears slim, as local regulations limit foreign investors to stakes of less than 25 percent in local airliners, while no more than 49 percent of a local airline’s shares can be sold to foreign investors.
Chang said Far Eastern Group (遠東集團) chairman Douglas Hsu (徐旭東) had also expressed an interest in a 15 percent stake in FAT after dilution.
Far Eastern Group, the biggest shareholder in FAT with a 15.22 percent stake, may have to spend another NT$300 million to remain a shareholder with a diluted 15 percent stake.
A market insider speaking on condition of anonymity yesterday lauded the airline’s success in attracting new capital, but said that there was some risk involved for potential investors, as the airline had not disclosed all the details of its financial situation or the size of its debts.
The airline is also planning to reduce capital soon after its recapitalization has been completed, which may cut the value of Kinmen Liquor’s reinvestment from NT$2.2 billion to around NT$1 billion immediately, the source said, urging the airline to beef up its future competitiveness and profitability.
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