Xie Weijun advocated that Cathay Pacific provide air ticket discounts as a condition for deferred dividend payment Xu Zhengyu: commercial decision

Cathay Pacific announced for the fifth time that it would delay the payment of preferred stock dividends to the government, with a total of 1.46 billion yuan in arrears in dividends.

Legislative Council member Tse Wai-chun quoted public criticism that the government injected 27.3 billion yuan into Cathay Pacific in mid-2020, but Cathay Pacific not only failed to pay dividends, but also did not propose a clear repayment schedule: "Neither interest nor repayment in the past three years." Unreasonable.

Xie Weijun asked whether the authorities would refer to the MTR’s mechanism of paying fines for service delays, and study requiring Cathay Pacific to rebate a certain percentage of fares or provide discounts to Hong Kong permanent residents who take its flights as a condition for delaying the payment of dividends?

Xu Zhengyu reiterated that the government has no intention of holding Cathay Pacific shares in the long-term, nor does it participate in the daily operations of the group. Air ticket prices are the responsibility of the group's board of directors and management, and decisions are made based on its commercial and operational considerations.

Xie Weijun raised a question in the Legislative Council on Cathay Pacific’s delay in paying dividends on preferred shares to the government. The Secretary for Financial Affairs and the Treasury, Xu Zhengyu, after consulting the Monetary Authority and the Transport and Logistics Bureau, pointed out in a written reply that under the impact of the epidemic, the local aviation industry In the face of severe challenges, Cathay Pacific Group plays a key role in Hong Kong's aviation industry. On June 9, 2020, the government decided to use the land fund to invest in Cathay Pacific to support Hong Kong's aviation industry through the cold winter and continue to promote the development of Hong Kong's international aviation hub. .

The investment includes investing in preferred shares of about 19.5 billion yuan and providing bridging loans of about 7.8 billion yuan. The preferred shares come with detachable warrants.

Xu Zhengyu pointed out that according to the agreement, Cathay Pacific Group must distribute dividends to the government holding preferred shares every six months, and the dividend rate will increase to 9% year-on-year. If Cathay Pacific Group delays the redemption of government preferred shares, the company's financing costs will gradually increase.

In addition, according to the agreement, Cathay Pacific may, at its discretion, defer the payment of preference share dividends, however, any unpaid dividends shall be subject to additional dividends at the then effective dividend rate, and Cathay Pacific Group shall ultimately pay all dividends and additional dividends to the government.

During the Cathay Pacific Group's deferral of dividends on preferred shares, the company cannot pay dividends on ordinary shares.

The interest rate on the bridging loan provided by the government to the Cathay Pacific Group is Hong Kong Interbank Offered Rate plus 1.5%.

Cathay Group can draw the loan in stages according to the cash flow needs within the loan drawable period, and repay it within 18 months after the draw.

Cathay Pacific Group must repay the loan and pay off the interest before the loan period expires.

So far, Cathay Pacific Group has not drawn down the bridging loan.

The above arrangements have achieved a balance in protecting the rights and interests of the government and supporting the Cathay Pacific Group.

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