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Chinese tighten Virgin Australia grip, nipping Singapore Air

06/12/2016| 11:46:18 AM| 中文

Deal of Nanshan paying 18% premium for 20% stake in Virgin Australia subject to regulatory approval by Chinese authorities.

Chinese companies strengthened their grip on Virgin Australia as a second conglomerate bought a stake in the carrier, handing a blow to key shareholder Singapore Airlines.

Nanshan Group will buy 811 million shares, or about 20% of Australia’s second-largest airline from Air New Zealand, the Auckland-based carrier said Friday. At a purchase price of 33 Australian cents apiece, the sale would value the stake at about A$268 million (USD 199 million). Nanshan’s assets stretch from aluminum to property and include the two-year-old Qingdao Airlines.

HNA Group, the owner of Hainan Airlines, last month said it plans to buy 13% of Virgin Australia and struck a code-share alliance with the Brisbane-based airline. While the Australian carrier is now better placed to tap the Chinese travel market, its disparate shareholders -- among them Etihad Airways -- may be harder to manage. 

Capital Review

The sale is subject to regulatory approvals from Chinese authorities. Air New Zealand was advised by First NZ Capital and Credit Suisse.

Virgin Australia shares climbed 7.1% to 30 Australian cents, valuing the carrier at about A$1.04 billion, after Air New Zealand said Nanshan plans to support the outcome of Virgin Australia’s current capital review. Nanshan is buying the Virgin Australia shares at an 18% premium to its Thursday closing price.

Unique Shareholding

If the deal is approved, Nanshan Group will hold almost as much as the other partners, making Virgin Australia’s shareholding unique with four airlines as key supporters.

Based in Longkou in China’s Shandong province, the Nanshan Group also has interests in fabric and garments, real estate, finance, education, tourism and healthcare, according to its website, which mentions Shandong Nanshan Aluminum as its sole listed unit.

Last month, billionaire Chen Feng’s HNA Group said it wants to raise its holding to 20% over time. After issuing new shares to HNA Group, Singapore Air was to hold 20.1% stake and Etihad 21.8%, according to the Australian carrier. After the Nanshan transaction, Air New Zealand will be left with 102 million shares, or the equivalent of a 2.5% holding in Virgin Australia.

Remote Parts

Last month, Singapore Air Chief Executive Officer Goh Choon Phong described the Australian market as “very important.” He said Virgin Australia was “commercially very important,” partly because the airline could reach remote parts of Australia more easily than Singapore Air. “We are happy with our stake currently,” Goh said at the time.

Singapore Air, which uses its Changi Airport hub to connect passengers to China and Southeast Asia, has benefited from the Virgin Australia partnership by tapping corporate flyers and reaching Australia’s domestic market. Now the city-state’s flag carrier may risk losing some of that traffic to HNA and Nanshan. After HNA bought the stake, Virgin Australia said it plans to start direct flights to and from China next year and fly some of those visitors on its network at home.

Mainland Visitors

Last year, more than 1 million Chinese travelers visited Australia and by 2020, the number will climb to 1.5 million, according to Virgin Australia.

Virgin Australia said in a separate statement that it looked forward to meeting with Nanshan in coming weeks and would consider an expected request for board representation.

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TAGS: Virgin Australia | Nanshan Group | Air New Zealand | Singapore Air
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