BASIS POINT-Air China seeks HK$5.25 billion loan

HONG KONG Aug 27 (Reuters Basis Point) - Air China Ltd (0753.HK) is seeking a HK$5.25 billion ($677 million) loan to help fund an $808 million deal to raise its stake in Cathay Pacific Airways (0293.HK), banking sources said on Thursday.

Air China, the world's most valuable airline and the largest of China's trio of major carriers, sent a request for proposals to banks in Hong Kong last week, asking potential lenders to submit responses by the end of August 28, the sources said.

Price talk for the all-in three-year term loan is in the 100s in basis points.

Last year, Air China got a $40 million three-year term loan from Mizuho Corporate Bank, BayernLB and Svenska Handelsbanken. That deal has a 1.5-year put option, which gives banks an 80 basis points extension fee if exercised. Based on the put not being exercised, banks get a top-level all-in of 150 basis points via a margin of 100 basis points over Libor.

Air China (601111.SS) agreed to buy a 12.5 percent stake in Cathay from conglomerate CITIC Pacific Ltd (0267.HK) for HK$6.3 billion ($808 million) earlier this month, lifting its stake in the Hong Kong-based airline to 29.99 percent. [ID:nT321641]

Air China's request comes amid increasing tailwinds for Hong Kong's syndicated loan market, where sentiment has been improving and banks are looking for new deals to join, bankers said.

"Liquidity is available in Hong Kong, it's just that there has not been sufficient deal flow to cater to all the pent-up demand," said a Hong Kong-based loan banker.

Air China's upcoming deal can also serve as a test to see if momentum can be sustained for the rest of 2009 in Hong Kong's loan market, after the market saw a slump in the first half.

Due to a lack of primary loans, Hong Kong's syndicated loan market volume plunged 32 percent year-on-year to $6.8 billion with just 19 deals in the first half of the year.

In March, Air China mandated BNP Paribas and SG for a $300 million 10-year aircraft financing. (Reporting by Foster Wong; Editing by Dan Lalor) ($1 = HK$7.750)