Chinese Government Supports Possible SIA Investment in China Eastern
May 22, 2007
China Eastern Airlines' negotiations with Singapore Airlines concerning the sale of a strategic stake in the mainland carrier are progressing well thanks to the support of the Chinese government, CEA President Li Fenghua revealed, although there is no fixed timetable to seal the deal.
Li confirmed that SIA, or another investor, will hold no more than 25% of CEA in accordance with CAAC regulations on foreign ownership in China's airlines. He refused to give further details.
Since China Eastern Airline Group holds a 59.9% share of the carrier and intends to maintain a controlling stake, insiders speculate that CEA may opt for circulation of additional A and H shares tailored for SIA, although this practice could challenge its controlling stake position.
But according to relevant Chinese regulations, the price of CEA shares on sale to its strategic investor must conform to the updated trading price of current circulation shares. Industry analysts have pointed out that "the government support" to which Li referred may be related to how it will sell the stake to SIA. CEA said earlier that it has consulted with the State-owned Assets Supervision and Administration Commission of the State Council regarding the issue.
Interest in CEA has soared recently as Air China expanded its stake to 8.26% from 7.88% through the purchase of 6 million H circulating shares. Citadel Group increased its share in CEA to 6.36% with the purchase of 15.21 million H shares.