Kingboard Chemical (00148.HK) said Monday that it would sell its entire 9.61 percent stake in Cathay Pacific Airways to Qatar Airways. The state-owned Middle Eastern carrier will become the third largest shareholder of Cathay Pacific.
Kingboard Chemical first revealed that it had accumulated a 5.01 percent stake in Cathay on December 12 last year.
The company was sitting on a huge cash pile of HK$5 billion as its net profit doubled last year. The investment move was not entirely surprising.
Founder Paul Cheung Kwok-wing is a smart investor. He said that Cathay Pacific had been plagued by its fuel hedging contracts, and the company may stage a comeback around 2020.
Having paid about HK$10 to HK$11 for Cathay Pacific shares, almost the lowest level in recent years, Cheung has made a decent profit of HK$800 million for a holding period of just about a year.
Kingboard sold its entire 378.18 million shares to the Doha-based airline for HK$13.65 per share, according to a stock exchange filing.
So what does Qatar Airways expect to gain from the deal?
First of all, the chance for the Doha-based carrier to become a controlling shareholder is slim.
China’s state-owned Air China now holds 29.99 percent in Cathay Pacific as the second largest shareholder. It’s widely believed that Air China would be interested to buy more of Cathay Pacific for strategic reasons.
Meanwhile, the largest shareholder, Swire Pacific, may tip in favor of Air China if it wants to reduce its shares in Cathay Pacific, given its broad business interests in mainland China.
So the draw for Qatar Airways could be forming closer ties with Cathay and Air China.
Qatar Airways itself is facing fierce competition from Gulf airlines. Qatar Airline, Emirates Airline and Etihad Airways are aggressively expanding their presence in Asia Pacific. They have snapped up many business travelers with comparable facility and services but more attractive prices.
It is thus possible that Qatar Airways, Cathay Pacific and Air China could build a more cooperative relationship in the future to avoid excessive price competition or even work out some code sharing deals.
This article appeared in the Hong Kong Economic Journal on Nov. 7
Translation by Julie Zhu
[Chinese version 中文版]
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