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SINGAPORE - Shares in China Eastern Airlines and Singapore Airlines were suspended yesterday amid reports the world's most valuable passenger airline would soon buy up to a quarter of the loss-making, Shanghai-based carrier for nearly US$1 billion ($1.4 billion).
A deal would bolster access to booming eastern China for Singapore Air, and beef up China Eastern's balance sheet to help it compete with rivals such as a newly forged alliance between Beijing-based Air China and Hong Kong's Cathay Pacific Airways.
China Eastern's Hong Kong shares closed at HK$3.73 (65c) before the suspension, having gained 60 per cent in three weeks amid speculation it was close to unveiling a deal with the Singaporean carrier.
A deal would satisfy the dual objectives of giving SIA a 25 per cent stake, while maintaining Chinese state control at over 50 per cent, Merrill Lynch said.
China Eastern (CEA) , the smallest of the country's three main carriers, would sell 2.05 billion Hong Kong-traded shares to Singapore Air, while the state would buy 1.3 billion new A shares, the influential Beijing-based Caijing magazine reported earlier this month.
Based on the stock's last close, Singapore Airlines would have to pay more than HK$7.65 billion for the CEA stake.
Singapore Air last traded at S$18.40 ($16.47). The stock has risen 37 per cent in the past year.
China Eastern posted a loss of 2.78 billion yuan ($498 million) in 2006. Rivals Air China and China Southern Airlines were both profitable.
Analysts and Chinese state media said a deal was far from certain.
- REUTERS
