China Eastern Airlines' parent group China Eastern Air Holdings plans to inject 3 billion yuan into its listing arm via private placement. The move sent its H-share price up over 40 percent. China Daily

H-share prices of China Eastern Airlines (CEA) and China Southern Airlines (CSA), two of the mainland's largest civil aviation companies listed in Hong Kong, soared over 40 percent yesterday, thanks to the aggregated 6-billion capital injection from their parent groups.

CEA yesterday announced that its parent group China Eastern Air Holdings plans to inject 3 billion yuan into its listing arm via private placement.

Under the subscription agreement, CEA Holdings will subscribe 653 million new H-shares and A-shares each of CEA at HK$1.14 and 3.6 yuan, respectively.

CEA Holdings will hold 68.19 percent stakes of CEA after the completion of the subscription. Total proceeds of the subscription amount to 3 billion yuan. The company's management expects the injection to reduce the gearing ratio by 3.77 percentage points.

CEA's H-shares resumed for trading yesterday. The price shot up by 60 percent in the early stage. The rally softened after the afternoon break with the share finally easing at HK$1.06, up 41.33 percent or HK$0.13.

A JPMorgan report said that the injection will have a positive effect to the carrier despite that the extent is limited.

The report stated that the proceeds provide a substantial boost to the company's book value from 0.26 yuan per share to 0.69 yuan per share.

"Although it will help lower the company's net debt equity by 0.234 percent points to 0.35 percent, the ratio is still at a very high level," said the report.

The report also noted that it is positive for the CAAC refunding the mainland airlines' civil aviation infrastructure development levies in the second half and waiving the payment in the first half next year.

The investment bank gave a "neutral" rating to the company with a six-month target price of HK$2.

Separately, China Southern Air (CSA) Holdings, the parent group of CSA, intends to pump 3 billion yuan to its listing vehicle through a total of 1.44 billion A, H-shares of CSA. Total proceeds of the subscription are about 3 billion yuan.

Fueled by the booster, CSA shares listed in the Hong Kong exchange yesterday surged by 44 percent to HK$1.34.

JPMorgan said that CSA will mostly benefit from the government endorsement and capital injection into the three largest mainland aviation players, noting the company's interest cost will, therefore, be reduced by 127 million yuan.

The bank gave CSA a "buy" rating, predicting its share price will stand at HK$1.5 in a six-month horizon.

(HK Edition 12/12/2008 page3)