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Monday, September 1, 2014

Hong Kong Airlines to Apply for Dual-Currency Listing

(WSJ) Hong Kong Airlines will apply for listing approval from the Hong Kong Stock Exchange for a US$500 million initial public offering that would be the city's first dual-currency IPO.

The airline, which focuses on short-haul flights, plans to submit a so-called listing application to the stock exchange Monday to float a yuan and Hong Kong dollar-denominated deal, a person familiar with the situation said Monday, adding the listing is likely to be in the fourth quarter.

The airline, which based in Hong Kong, is planning offer half of the shares in the retail tranche of the IPO in yuan-denominated offerings. The retail portion will make up 10% of the total IPO, the person said. Investors who buy from the institutional tranche of the IPO, accounting for 90% of the deal, will be allotted some yuan-denominated shares if there is sufficient demand for them, the person said.

Demand from institutional investors is unlikely to be huge, as most invest in U.S. dollars. Many Hong Kong residents, who can buy in the public tranche of the IPO, however, sit on billions of yuan of deposits, since China started allowing them to save yuan in the city.

By the end of June, yuan deposits in the Chinese territory totaled 925.9 billion yuan (US$150.6 billion), up from 893.4 billion yuan in January, according to the Hong Kong Monetary Authority.

China has been moving to loosen restrictions on its currency as part of efforts to internationalize the yuan, with Hong Kong whose currency is pegged to the U.S. dollar, acting as the de facto center of the nation's test of allowing banks and individuals to freely trade the yuan abroad.

The share offering would be the latest yuan-denominated product offered to investors in Hong Kong, seeking returns from their growing yuan deposits.

Currently, yuan investments products in the city are limited. The only company in Hong Kong that trades in the Chinese currency, Hui Xian Real Estate Investment Trust, raised US$1.6 billion in an IPO in April 2011. Other than that, most Hong Kong investors with yuan deposits spend it on yuan bonds, also known as 'dim-sum bonds', which have emerged since international companies began selling them in 2010.

Hong Kong Airlines is controlled by Chinese conglomerate HNA Group, whose holdings include Hainan Airlines. It flies short-haul regional routes between Hong Kong and other destinations in Asia, including Phuket in Thailand, Osaka in Japan, and Chinese cities like Beijing and Shanghai.

The airline, which has a fleet of around 23 aircraft, is looking to list as it grapples with high fuel prices and competition from bigger rival Cathay Pacific Airways Ltd. Funds raised from an IPO would go toward financing its plan to buy more aircraft, the carrier had said.

J.P. Morgan Chase & Co is handling the transaction.

Source: Wall Street Journal by Prudence Ho


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