Hong Kong - Cathay Pacific Airways shares tumbled following an announcement that Swire Pacific Finance will place exchangeable bonds totaling HK$4.7 billion that may be swapped for the carrier's stock.
The bonds are being issued by Swire Pacific Finance, a wholly-owned subsidiary of Swire Pacific, with Swire Pacific acting as guarantor. The issuer and guarantor have entered into a subscription agreement with the arranging managers to underwrite the bond sale.
Under the terms disclosed, the securities can be exchanged at an initial conversion price of HK$13.18 per Cathay Pacific share. At that price, a full exchange would produce 357 million new Cathay Pacific shares, which equates to roughly 5.9% of the airline’s total issued shares.
Swire Pacific Finance estimated it will receive net proceeds of approximately HK$4.652 billion from the transaction. The company said it intends to apply those funds for general working capital purposes.
On the Hong Kong market, Cathay Pacific (SEHK:0293) was trading at HK$12.80 during the session, a decline of HK$0.88 or 6.87% on the day, reflecting investor reaction to the convertible-bond proposal.
Market reaction and mechanics
The structure being used is an exchangeable bond, which provides holders the option to swap the bond for shares in the underlying company - in this case Cathay Pacific - at a predefined initial price. The arrangement involves Swire Pacific Finance issuing the bonds while Swire Pacific stands behind the issuance as guarantor.
Management of the issuance has been formalized through a subscription agreement with the bond managers, and the net cash expected from the deal has been specified as approximately HK$4.652 billion. The stated use for these funds is general working capital.
Key facts recap
- Exchangeable bonds to be issued by Swire Pacific Finance total HK$4.7 billion.
- Initial exchange price set at HK$13.18 per Cathay Pacific share; full conversion equals 357 million shares or about 5.9% of issued shares.
- Net proceeds expected: roughly HK$4.652 billion, earmarked for general working capital.
- Cathay Pacific shares traded at HK$12.80, down HK$0.88 or 6.87% on the day.