Cathay Pacific Airways, Swire Pacific and Citic Pacific have sold their combined stake in Hong Kong Air Cargo Terminals (Hactl) for HK$2.56 billion ($329 million), fulfilling their obligation to divest the shares ahead of the opening of a new air cargo terminal at the airport.
Hactl's remaining owners, Jardine Matheson, Hutchison Port Holdings, Wharf Holdings and China National Aviation Corporation (CNAC), will buy the 40% stake, increasing their combined ownership to 100%. Their new individual shareholdings were not disclosed in stock exchange filings. The transaction will be completed by May 31.
In a statement, Hactl said the increased investment in the company by the remaining owners demonstrated "confidence" in the cargo facility's "long-term growth and development".
Cathay Pacific sold its shares in Hactl, representing a 10% stake, to comply with a March 2008 agreement with the Hong Kong Airport Authority, which required it do so in exchange for a 20-year franchise of the new cargo terminal currently under construction at the airport, which will have an annual capacity of 2.6 million tonnes. The airline's wholly owned subsidiary, Cathay Pacific Services, is investing HK$5.5 billion in the new facility due to open in 2013.
"The new cargo terminal is an important investment not just for Cathay Pacific, but also for Hong Kong, and will boost the competitiveness of HKIA [Hong Kong International Airport] as a centre for international and regional air cargo traffic," Cathay chairman Christopher Pratt said in a statement. The new terminal was previously scheduled to open in 2011 but was delayed in January 2009 due to the negative economic conditions at the time. Construction resumed this year.
The three companies said the proceeds from the sale would be used for "working capital purposes". According to a representative of Cathay Pacific, there was no specific use identified for the funds.
The airline had HK$16.5 billion in available cash at the end of 2009, up 9.5% from a year earlier.
The sale is the latest in a series of transactions to increase Cathay Pacific's working capital. Last September, the airline sold a 12.45% stake in Hong Kong Aircraft Engineering Company (Haeco) to Swire Pacific for HK$1.9 billion in order to improve its cash position. Swire Pacific is Cathay Pacific's largest shareholder.
Corrine Png, head of Asia-Pacific transportation equity research at J.P. Morgan, wrote in a report that Cathay Pacific will book a disposal gain of HK$329 million from the sale. She added that the transaction value was on the low side because Hactl stands to lose up to 45% of its business when the airline stops using its facilities for cargo handling in 2013.
According to the stock exchange filing, Citic Pacific will realise a profit of HK$413 million from the sale of its 10.002% stake, while Swire Pacific will record a profit of HK$826 million from its 19.998% holding.
Hactl currently handles approximately 80% of the cargo traffic at the Hong Kong airport. In the first four months this year, the airport handled 1.3 million tonnes, up 35% compared to the same period last year.
According to a representative of Cathay Pacific, there were no financial advisors involved in the sale.
Shares of all the publicly traded entities involved in the transaction fell along with the Hang Seng Index, which was down 3.5%, yesterday. Cathay Pacific fell 3.2% to close at HK$14.54, Citic Pacific dropped 4.45% to HK$12.88 and Swire Pacific's A-shares lost 2.83% to HK$84.
Among the buyers, Hutchison Whampoa, owner of Hutchison Port Holdings, dropped 3.77% to HK$47.25 and Wharf Holdings fell 3.95% to HK$35.25.
In February, Cathay Pacific announced the details of its long-awaited cargo airline joint venture with Air China. The Hong Kong-based airline will own a 25% stake in the new Air China Cargo and provide four Boeing 747-400 converted freighters when the JV becomes operational this summer. The cargo carrier will be based in Shanghai.
Cathay Pacific reported a profit of HK$4.86 billion on revenues of HK$45.9 billion last year. This was a significant improvement after it lost HK$8.6 billion in 2008 on the back of an unrealised mark-to-market fuel hedge loss.