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The agreement was signed on September 28, according to which the listed arm would sell a 50% stake in MTU Maintenance Zhuhai to the parent. The transaction will not be practicable unless it receives approval from the State-owned Assets Supervision and Administration Commission and the Ministry of Commerce.
MTU Maintenance Zhuhai was established by China Southern Airlines and German MTU Aero Engines on April 6, 2001 with registered capitals of USD 63.1 million. The Chinese party injected cash of USD 31.55 million into the venture and took a 50% stake.
MTU Maintenance Zhuhai is engaged in the repair, overhaul and maintenance of engines for civil airplanes. It also provides technology support like the installation and disassembly of engines as well as tenancy of engines and components. Last year, China Southern Airlines paid the venture CNY 383 million for the aforementioned services.
The to-be-sold 50% stake is evaluated at CNY 1.6 billion, with June 30, 2009 as the benchmark date, which will be purchased by CSAH in cash after their agreement takes effect, said a report released by China United Assets Appraisal Co., Ltd.
The equity sale is estimated to bring proceeds of CNY 1.1 billion to China Southern Airlines, pushing up the company's 2009 earnings per share by CNY 0.11.
The board of China Southern Airlines believes that the transaction will help the company focus on air transportation, reduce financial expenditure and lower liabilities-to-assets ratio. It will continue getting services from MTU Maintenance Zhuhai in the future.
China International Capital Corporation Limited (CICC) maintains a neutral rating on China Southern Airlines, deeming that the equity sale will boost the latter's net profits and enrich its working capitals. Meanwhile, the investment bank points out that the evaluation of the 50% stake is relatively lower.
Besides, China Southern Airlines is likely to make less money from MTU Maintenance Zhuhai after the transaction. Last year, the venture obtained operating revenues of CNY 2.79 billion and net profits of CNY 269.6 million.
The figures hit CNY 1.4 billion and CNY 202 million respectively in the first half of 2009, when China Southern Airlines gained investment proceeds of CNY 81 million from MTU Maintenance Zhuhai.
Thus, if the venture is able to bring investment proceeds of CNY 162 million to China Southern Airlines in the full year, the latter's 2009 earnings per share will dilute CNY 0.02 after the equity sale.
(USD 1 = CNY 6.84)
Source: www.hexun.com (October 12, 2009)
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