Hong Kong Airlines filed its application for listing on the city state’s stock exchange on September 6th, ahead of an expected US$500 million dollar dual-currency listing this fall.
Under the lead of JPMorgan (NYSE: JPM), the short-haul carrier will be the first to offer two types of shares in both Chinese Yuan and Hong Kong Dollars as the territory’s stock exchange, the world’s sixth largest, seeks to innovate and remain one of Asia’s top financial centers. Each set of shares will have its own stock code, but both will be identical in value, and shareholders of either will have equal rights.
News of the filing comes after a report by the Hong Kong Monetary Authority showed that retail investors in the city held a combined RMB937 billion (US$152.6 million) at the end of June, and this IPO seemingly targets investors who hold large deposits of Chinese Renminbi in Hong Kong, rather than the territory’s local currency.
Because interest rates remain at low levels, Hong Kong Airlines is attempting to convince potential subscribers that investing is a better option than keeping their RMB in the bank. The company will also offer incentives which involve giving free airline miles, discounts, and tickets to those who hold their shares for a specific period of time. While subject to change, the current plan involves giving stockholders one mile for each share held.
Hong Kong Airlines could raise as much US$600 to help purchase new aircraft consisting of 15 Airbus A350s, 6 Airbus A330s, and 13 Airbus A320s. Most of these new planes will be in operation by 2017, bringing the company’s total fleet size to 54 by 2018.
While Hong Kong Airlines is smaller than Cathay Pacific (OTCPK: CPCAY), its main competitor and the territory’s largest airline, they have brought in customers by using newer models of aircraft and focusing on smaller cities that are usually overlooked by other airlines. Their fleet is only 2.4 years old on average as of May, and have better fuel efficiency and lower maintenance cost. They also have routes to many fast-growing second tier cities in China, such as Chengdu, Nanjing, and Tianjin.
The airline’s year-on-year net profit dropped during the first six months of this year. Unrest in Thailand and Vietnam, as well as the disappearance of Malaysia Airlines Flight 370 and the shooting down of Malaysia Airlines Flight 17, have caused a decline in air travelers in 2014. However, net profit has steadily risen over the past three years totaling HK$147.9 million in 2011, HK$274.7 million in 2012, and HK$493.3 million in 2013.