China Southern Airlines to issue up to $2.25bn in A-share convertible bonds

Chinese carrier China Southern Airlines has reportedly planned to issue up to CNY16bn ($2.25bn) in A-share convertible bonds.

The bonds will facilitate the company’s fleet expansion, fund maintenance services and spare engines, and boost its cash flow.

Convertible debt provides coupons and interest payments similar to regular bonds; however, these debts can be transformed into shares at a certain price.

Reuters reported that the carrier will raise CNY10.6bn ($1.4bn) to purchase aircraft, aviation supplies and maintenance programmes, which constitute about 50% of the total investment that the carrier required. 

It is also planning to raise CNY600m ($84m) to fund buy spare engines. The company plans to use the remaining CNY4.8bn ($675m) to shore up its capital.

The decision to issue bond comes following the company’s first-quarter result, which saw an almost 300% plunge in its net profit as the coronavirus pandemic paralysed the entire aviation industry.

In March, the carrier warned about ‘extreme difficulties’ facing business operations in the wake of Covid-19. 

Chinese airlines recorded a total loss of CNY33.62bn ($4.8bn) during the first quarter of this year.

Headquartered in Guangzhou, China Southern Airlines is directly affiliated with China Southern Air Holding Company. The carrier currently operates more than 850 passenger and cargo transport aircraft.

In December 2019, British Airways and China Southern Airlines entered a joint business agreement to open up additional destinations between the UK and China, as well as provide customers with flight options.