* Seeks to tap massive pool of yuan deposits in HK
* Free tickets, discounts to be offered to IPO
(Adds comments, growth potential and fleet plans)
By Elzio Barreto
HONG KONG, Sept 5 Regional carrier Hong Kong
Airlines International Holdings Ltd filed on Friday for the
city's first-ever dual currency initial public offering, looking
to tap a massive pool of yuan deposits held in local banks.
The IPO represents a key milestone for Hong Kong, which is
keen to bolster its position as a global hub for trading in the
Chinese currency. It established a framework for shares to
trade in yuan in addition to Hong Kong dollars in 2011.
The carrier could raise about $600 million to buy new
aircraft, according to a source with direct knowledge of the
plans. A bigger fleet is central to its ambitions to expand
further into China as well as to taking on bigger rival Cathay
Pacific Airways Ltd elsewhere in the region.
The draft prospectus contained no details on the deal size
or number of shares on offer.
"There's a tremendous amount of yuan sitting idly, mainly
being held by retail investors," said the source, who declined
to be identified as details of the IPO have not been officially
"For them, instead of putting the money in the bank and
getting just 1 or 1.5 percent interest rates from banks...maybe
they would rather get a better return instead."
Yuan deposits in the city, held mainly by Hong Kong
residents, totaled about 937 billion yuan ($153 billion) at the
end of July.
So far, only two other Hong Kong-listed companies have taken
advantage of the dual currency framework, but they sold shares
in yuan only.
A successful IPO for Hong Kong Airlines could encourage
other companies to offer tranches in both currencies but they
would most likely be firms appealing to retail investors, the
source said. He added that institutional investors had more
attractive options for investing with the Chinese currency such
as yuan bonds.
REELING IN RETAIL INVESTORS
The airline, which operates 23 aircraft and flies to 26
cities around Asia, hired JPMorgan as sole sponsor of the IPO.
It is controlled by entrepreneurs Zhong Guosong, Mung Kin
Keung and HKA Holdings, a holding company partly owned by the
two and Chinese airline-to-logistics conglomerate HNA Group.
HNA also owns mainland carrier Hainan Airlines and leasing firm
Hong Kong Aviation Capital.
The airline will offer an incentive plan to lure retail
investors, giving discounts or free tickets for IPO subscribers
who keep their shares for a certain period of time, the source
The plan is similar to those of other airlines such as
Malaysia's AirAsia X Bhd, which offered free tickets
to retail investors who subscribed to a minimum of 10,000 shares
in its IPO in 2013 and kept them for a least one year.
Hong Kong Airlines is the third biggest airline in Hong
Kong. In terms of seat capacity, Cathay has about a one-third
share, Cathay's low-budget carrier Dragonair has about 15
percent while Hong Kong Airlines has less than 10 percent.
With its budget carrier Hong Kong Express, Hong Kong
Airlines plans to add 31 new aircraft and expand into 30
destinations in China, which observers say is ready for a boom
in budget travel.
It also plans to fly to 10 new international destinations in
Asia Pacific, including cities in India and Indonesia.
The planned new aircraft include 21 Airbus 320s, seven 330s
and three A350s, according to the prospectus. The figures could
change as the company is still in negotiations with suppliers
for more than half of the jets.
Benefiting from growing traffic out of China and Hong Kong's
prime location as a transfer hub, passenger volume at the city's
international airport is forecast to expand to 74.1 million in
2017 from 59.9 million in 2013, the carrier said, citing
estimates from consulting company ICF International.
(1 US dollar = 6.1443 Chinese yuan)
(Reporting by Elzio Barreto. Additional reporting by Siva
Govindasamy and Anshuman Daga.; Editing by Edwina Gibbs)