Desirable airline stake under hammer
(China Daily)
Updated: 2005-04-28 09:01

SHENZHEN: The aviation industry is buzzing after Guangdong Guangkong Group's sudden decision to auction its 65 per cent stake in a profit-making local carrier.

The largest shareholder in Shenzhen Airlines said the move is the result of the restructuring of its parent company - Guangdong Development Bank - which is not allowed to run any non-banking investment business, according to the Banking Law.

Shortly after the auction was announced on the website of Shenzhen Enterprises Ownership Exchange Centre on April 20, seven companies registered to attend the largest ever stake transfer in the history of the domestic aviation industry.

The interested parties include Air China, the country's largest carrier, and leading investment company CITIC Group, a manager surnamed Li at Guangkong was quoted by China Business News as saying.

The auction was soon postponed from tomorrow to May 23 at the request of a number of large State-owned enterprises that require more time to secure approval before bidding.

According to the auction notice, bidders are required to have at least 1.5 billion yuan (US$181.2 million) in net assets and no less than 3 billion yuan (US$362.3 million) in total assets. They are also required to provide audited financial reports for 2003 and 2004.

The bidding starts at 1.6 billion yuan (US$193.2 million), a company insider told China Daily yesterday. Market analysts estimate Guangkong, one of the five founders of Shenzhen Airlines, spent 300 million yuan (US$36.2 million) for the 65 per cent stake.

Air China, the second largest shareholder in Shenzhen Airlines with a 25 per cent share, has expressed its interest in taking over the stake.

Focusing its efforts mainly on the northern market, Air China has recently been granted approval for setting up an operational base in Guangzhou.

"We are considering the possibility of consolidating our resources in the southern market such as Guangzhou, Hong Kong and Macao and locating a regional headquarters in Shenzhen or Guangzhou," said a director surnamed Rao.

Shenzhen Airlines, owning 27 passenger jets and employing more than 4,000 staff, is widely seen as a quality company. It has turned a profit for nine consecutive years up to September 2004. Company figures show that it earned more than 200 million yuan (US$24.2 million) last year.

"By controlling Shenzhen Airlines, other domestic carriers could have a more advantageous position in the southern market," said an analyst surnamed Ma at United Securities.

However, Beijing-based Modern Group, a private company that has investments in the property market, pharmaceuticals industry and public utility construction, is regarded as one of the favourites to snare the airline stake.

With total assets of 4 billion yuan (US$483.1 million), the firm has been keen to acquire an airline ever since the market was opened to private companies.

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