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Air China's parent 'seeking to foil SIA bid with counteroffer'
Vince Chong Fri, Jan 04, 2008 The Straits Times
THE parent company of Air China - the world's largest airline by market value - is reportedly determined to thwart a bid by Singapore Airlines (SIA) and Temasek Holdings for Air China's rival, China Eastern, with a counteroffer. Air China's proposed bid stood at HK$5 a share, sources told Hong Kong's Chinese-language Mingpao Daily, more than SIA's and Temasek's HK$3.80 a share offer but still lower than China Eastern's current market price. On New Year's Day, China National Aviation Corp (CNAC), which controls China's No 1 airline, Air China, slammed the joint bid as too cheap. It added that the deal could also 'place a potential obstacle to the future development of the domestic industry'. In a statement released yesterday, China Eastern hit back by saying that its plan to sell a 24 per cent stake to SIA and Temasek for HK$7.2 billion (S$1.3 billion) followed lengthy, market-based talks.

Observers say CNAC wants to add China Eastern, China's No. 3 airline, to its books to bolster industry consolidation, as well as grab a share of the carrier's lucrative Shanghai aviation base.

CNAC currently has a market share of 37 per cent at Shanghai. Still, some within the central government are believed to prefer attracting much-needed international carrier expertise.

Last year, Air China itself teamed up with Hong Kong's Cathay Pacific in a two-way investment deal.

CNAC, which owns over 12 per cent of China Eastern, is likely to vote against the SIA-Temasek deal in shareholders' meetings scheduled on Tuesday, market watchers said.

It can then put in a new bid, which will also have to be approved by the same China central leadership that has already sanctioned the deal with SIA and Temasek.

A two-thirds majority approval by shareholders of both China Eastern's Hong Kong- and Shanghai-listed stock must be achieved at the meetings for the deal to pull through.

Neither China Eastern nor its parent, which owns over 50 per cent of the carrier, is allowed to vote.

Central to the deal is dominant control of booming Shanghai's commercial airspace, which is expected to grow given Shanghai's stature as an important cog in the mainland economic juggernaut.

Last year's third-quarter figures showed that some 52 million passengers flew with China's domestic carriers, a 15.3 per cent year-on-year rise, according to airline regulator the General Administration of Civil Aviation.

In 2010, the Shanghai World Expo is expected to draw 70 million visitors, while the appreciation of the Chinese yuan - which has climbed more than 10 per cent against the US dollar since a peg was scrapped in July 2005 - also helps to boost the bottom lines of mainland carriers, as these typically carry US dollar-denominated debts.

Not everybody is happy with Air China's rumoured counterbid, though. The price of China Eastern's Hong Kong-listed stock slumped by 11 per cent to HK$7.16 yesterday, after investors deemed the speculated HK$5 per share offer lower than expected.

vincec@sph.com.sg

NEW SANCTION

A counterbid for China Eastern, if ever CNAC pushes through with one, will have to be approved by the same China central leadership that has already sanctioned the deal with SIA and Temasek.

STILL TOO LOW

China Eastern's Hong Kong-listed stock slumped by 11 per cent, after investors deemed the speculated HK$5 per share offer lower than expected.