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Cathay Pacific shelves U.S. dollar bond plans amid Hong Kong unrest

Stock MarketsOct 18, 2019 05:01AM ET
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© Reuters. FILE PHOTO: A Cathay Pacific Boeing 777 plane lands at Hong Kong airport after it reopened following clashes between police and protesters

By Scott Murdoch

SINGAPORE (Reuters) - Cathay Pacific Airways Ltd (HK:0293) has shelved plans for its first U.S. dollar debt deal in 23 years, the airline said on Friday, after sources told Reuters that global investors had baulked at the pricing due to civil unrest in Hong Kong.

The airline, the biggest corporate casualty of widespread anti-government protests in the Asian financial hub, on Friday lowered its second-half profit expectations, citing "incredibly challenging" conditions in its home market.

Cathay had started meeting investors in Hong Kong and Singapore on Sept. 24 after it mandated four banks to explore carrying out a U.S. dollar denominated bond, according to a term sheet issued at the time, seen by Reuters.

It would have been the first U.S. dollar debt deal for Cathay since 1996 and had been touted as a landmark transaction for the airline given all of its debt is denominated in Hong Kong dollars.

The issuance was to be unrated, and two sources with knowledge of the matter said that Cathay was willing to pay 200 basis points over the U.S. Treasuries rate to secure three-year or five-year funding, with the size and term of the placement dependent on demand.

However, investors demanded a higher price of at least 300 basis points over U.S. Treasuries, which made the deal more expensive for Cathay, said the sources, who were not authorized to speak publicly about the matter.

Cathay's term sheet had said the transaction would be reliant on market conditions.

A Cathay spokesman on Friday said the Hong Kong dollar private placement market was providing more funding opportunities and a debt issuance in that market was completed last month.

"We will continue to monitor the U.S. dollar bond market in future," he said in a statement.

Dealogic data showed that Cathay raised $102 million in October and $64 million in May through Hong Kong dollar denominated deals.

The airline has only carried out 12 bond transactions in the past decade and all were priced in Hong Kong dollars.

Cathay had mandated Bank of America Merrill Lynch (NYSE:BAC), BNP Paribas (PA:BNPP), Deutsche Bank (DE:DBKGn) and HSBC to work on the shelved U.S. dollar bond deal.

Cathay Pacific shelves U.S. dollar bond plans amid Hong Kong unrest
 

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