HONG KONG (Reuters) - Investors bid up Air China shares to a two-year high on Friday on expectations the world"s largest airline by market value will use its new $950 million war chest to fund acquisitions at home and abroad.
Air China (0753.HK)(601111.SS) announced late on Thursday that it would issue new A and H shares to its parent and other individual investors to raise about 6.5 billion yuan ($952 million).
Hong Kong-listed shares of Air China surged more than 13 percent to a two-year high of HK$7.66 within the first 15 minutes of trade on Friday. By noon, the stock was at HK$7.59, up 12 percent, beating the broader Hang Seng Index"s .HSI 0.2 decline.
"The new funds will strengthen the company"s balance sheet and the other catalyst for the stock price is MA potential," said Kelvin Lau, an analyst at Daiwa Capital Markets.
Besides the widely expected acquisition of Shenzhen Airlines, Air China could buy strategic stakes in other Asian airlines, he said.
Air China, the biggest of the country"s three major airlines including China Southern (1055.HK) (600029.SS) and China Eastern Airlines (600115.SS) (0670.HK), already has a 25 percent stake in Shenzhen Airlines as the second-largest shareholder.
Shenzhen Airlines recently appointed Air China Vice-President Fan Cheng as acting president, raising the chances for a takeover of the privately-run airline.
"Industry consolidation had been going for a few years before stopping briefly last year because of the global financial crisis, and will resume," Lau said.
Air China"s announcement said the proceeds of the share sale would be used for working capital, but could also help fund Air China"s potential plan to lift its stake in Shenzhen Airlines in our view, JP Morgan said in a research report.
"The fundraising is smaller than China Southern"s 10.8 billion yuan plan announced earlier this week, reflecting Air China"s much stronger financial position," it added.
Analysts said the plan would enhance the company"s book value and lower its interest expenses.
Air China chairman Kong Dong told Reuters last week that the carrier was keen on mergers and acquisitions at home and abroad.
But analysts cautioned that it would not be easy for Air China to help turn debt-ridden regional rivals by forming alliances.
Air China is expected to reverse huge losses in 2008 to post a profit of 4.3 billion yuan for last year, according to Thomson Reuters I/B/E/S, but a 2010 profit is likely to dip on a lack of fuel-hedging gains, despite rising passenger and cargo traffic demand.
Daiwa estimated Air China would book fuel-hedging gains of 3.7 billion yuan for 2009.
($1=6.826 Yuan)
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