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Thu, Nov 25, 2004 - Page 12 News List

Air China plans to raise US$1 billion in IPO to pay debt

BLOOMBERG

Air China Ltd (中國國際航空), China's biggest international carrier, plans to raise as much as HK$8.7 billion (US$1.1 billion) in its initial public offering to buy aircraft and pay debt, bankers involved in the sale said.

The Beijing-based company is offering 2.805 billion shares at between HK$2.35 and HK$3.10 each, which is 8.8 times to 11 times the profit forecasts for next year by banks arranging the sale, the bankers said, asking not to be identified.

Air China will benefit from a rally in Hong Kong shares that pushed the city's benchmark stock index to its highest in almost four years, fund managers such as Andy Mantel said. The acquisition of a 10 percent stake by Hong Kong's Cathay Pacific Airways Ltd and a decline in fuel prices from a 14-year high last month may also boost investor confidence.

"The timing is right to list on the market and the Cathay Pacific investment will help," said Mantel, the managing director of Pacific Sun Investment Management Ltd in Hong Kong, who may buy the shares.

"A lot will still come down to pricing," he said.

Air China is luring investors to the sale citing an expected increase in demand for air travel and airfreight, boosted by China's average 9 percent annual economic growth during the past decade.

Hong Kong's Hang Seng Index closed at 14,023.29 yesterday, the highest since March 9, 2001. The benchmark has climbed 20 percent in the past six months, partly as an influx of mainland Chinese tourists helped revive the city's economy.

The airline is selling its shares at a valuation similar to that of China Eastern Airlines Corp, China's third-largest carrier by fleet size, which trades at 11 times forecast earnings for next year, according to Bloomberg data. China Southern Airlines Co, the country's largest airline, trades at 15 times forecast earnings for next year.

Air China plans to fix the price of its shares in the week of Dec. 6 and start trading in Hong Kong and London in the week of Dec. 13, the bankers said.

China International Capital Corp and Merrill Lynch & Co are arranging the sale. China International's spokeswoman in Beijing, Feng Danyun, and Merrill Lynch spokeswoman Connie Ling both declined to comment.

An estimated 100 million Chinese citizens will travel abroad every year by 2020, an average annual growth rate of 12.8 percent, or triple the global industry expansion, according to the Madrid-based World Tourism Organization, a UN agency.

Higher jet fuel prices are threatening to erode the profitability of Chinese airlines even when traffic is increasing. China's dominant jet-fuel supplier raised the price at which it sells to domestic airlines by 10.8 percent, state-run Xinhua News Agency said in August.

The price of jet kerosene traded in Singapore rose as much as 66 percent to US$63.95 a barrel on Oct. 14, the highest since October 1990, according to oil-pricing services Platts. The price has since declined by as much as 16 percent.

Air China plans to spend 18.7 billion yuan (US$2.3 billion) buying 46 aircraft by 2006 and building an airport terminal, according to Merrill Lynch's research on the sale.

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