The board of China Airlines Ltd (CAL, 中華航空) has approved a capital reduction proposal to strengthen the company’s financial structure and increase net value per share, CAL said in a stock exchange filing on Friday night.
The nation’s largest air carrier said it planned to bring about capital reduction of NT$14.9 billion (US$450 million) by buying back and canceling 1.49 billion common shares.
Following the 30.67 percent reduction in its capital, CAL will have capitalization of NT$33.69 billion, the filing showed.
The company’s board also approved the sale of unsecured corporate bonds later this month through a private placement to repay debts, CAL said in a different stock exchange filing.
The company plans to issue NT$10 billion in bonds this year, which will include a portion with a three-year maturity and a yield of 3.4 percent and another portion of five-year debt with a yield of 3.6 percent, the filing showed.
Local insurance companies are expected to be the main buyers of the debt, with Shin Kong Life Insurance Company (新光人壽) saying in a statement on Friday night that it had signed up for NT$3 billion in CAL’s three-year bonds.
In addition to the capital reduction and new bond issues, CAL plans to recapitalize later this year in a bid to further boost its financial health.
The company did not specify the amount of the planned recapitalization, but the Chinese-language Economic Daily News reported yesterday that the capital injection would be NT$15 billion, citing company sources.
The company will seek shareholder approval for the proposals at the May 18 annual general meeting, which comes after CAL reported a record net loss of NT$32.35 billion, or NT$7.11 per share, last year.
That compared with a net loss of NT$2.52 billion in 2007 and a profit of NT$738 million in 2006, CAL’s previous financial reports showed.
To make up for its poor performance last year, CAL plans to cancel distribution of dividends to shareholders, while its board of directors will receive no compensation or bonuses as the company has no retained earnings for such payouts, the company said in a statement.
The financially beleaguered carrier said falling demand because of the global economic recession was the main culprit for the losses, despite the benefits of its hedging strategy that achieved a fuel cost saving of NT$12.98 billion for the first three quarters of last year.
Its operational loss was NT$10.21 billion, mainly because fuel costs rose 45 percent year-on-year in the first three quarters of the year, while non-operational losses were NT$26.48 billion for last year, the statement said.
Despite bad fuel risk management and poor demand, CAL said it was confident that this year would be more prosperous for the company thanks to lower fuel prices, direct transport links with China and its continuing cost saving efforts, the statement said.