In a statement to the Shanghai Stock Exchange, Hainan Airlines outlined a plan to raise up to eight billion yuan ($1.2 billion) via a private placement of 1.247 billion shares with a set lower limit of 6.42 yuan each. The airline, which is part owned by US financier George Soros, will use the proceeds of the placement to repay outstanding bank loans of about 6 billion yuan, with the rest being used for working capital.
This is not the first private placement issued by Hainan Airlines; it raised three billion yuan in February 2010.
After the latest issues, the airline’s debt to asset ratio will reduce from the current estimated rate of 81.51% to 71.36%.
Meanwhile, Air India’s banks have refused to give the airline more funds due to non-payment of interest on working capital loans of R21,200 crore (approx. $212 billion). If the airline does not make the interest payment within 90 days, it will be considered non-performing asset – a default. If the airline defaults it would threaten the government guarantee.
Without funds, the airline is not expected to be able to operate normally, which is why it has approached the Indian government for funds in the form of equity or clearing of dues amounting R373 crore. The airline needs R1, 222 crore from the government to maintain operations.
Air India will present its financial position on Tuesday to a committee of finance and aviation secretaries. Any further government aid will be dependent on its approval of the airline’s turnaround plan.
Air India has a total debt of about R20, 000 crore besides an accumulated loss of R19, 000 crore as on March 31, 2011. The airline has approached the government for a bailout package of R6, 600 crore over and above R2, 000 crore it has already received.