Speech at Panel on Economic Development & Panel on Financial Affairs

Government’s investment in Cathay Pacific Airways Limited under the Land Fund

Details of the investment

Mr CHAN Chun-ying enquired about the rationale for the Government not requesting a discount on the preference shares following the general practice. Pointing out that Swire Pacific Limited, Air China Limited and Qatar Airways would hold shares of 42.26%, 28.17% and 9.38% respectively in the Cathay Group after the recapitalisation plan, he asked about the considerations taken into account in setting the Government’s shareholding to be 6.08% should it exercise all the detachable warrants. Given that the bridge loan would only be available for drawdown in 12 months and should be repaid in 18 months after each drawdown, he asked if the Government intended to drive the Cathay Group to seek other financing options to sustain its operation after 30 months.

FS explained that the Government sought to support the Cathay Group through investment in which the Government could receive dividends from the preference shares at a step-up rate, interests from the bridge loan and potential upside from the detachable warrants. On the shareholding ratio, it was the Government’s intention to make the aggregate exercise price of the detachable warrants equivalent to one-tenth of the notional value of preference shares, resulting in a 6.08% holding in ordinary shares in the Cathay Group if the warrants were fully exercised by the Government. Since the Cathay Group had difficulties in raising funds in the private market amidst the COVID-19, the bridge loan would tide the Cathay Group over until its borrowing capacity resumed to normal.

Outlook of the aviation industry

Expressing concerns about the outlook of the aviation industry, Mr CHAN Chun-ying enquired how long the Cathay Group could sustain without requiring further financial supports from the Government. FS said that amidst the huge challenges brought about by the pandemic, coupled with the uncertainties as to the pace of recovery of the aviation industry and global economy, and pending the outcome of the Cathay Group’s re-evaluation of its business model, it would not be realistic to predict what the situation too distant from now would become. Nevertheless, he was confident that the aviation business would revive when the pandemic was over and Hong Kong’s position as the international aviation hub would not be replaced easily.