Swire Pac (19 HK) Further Trims Cathay Exposure

• Swire Pacific (19 HK) announced plans to raise HK$4.7bn via the issuance of bonds exchangeable into shares of Cathay Pacific (293 HK).

• The zero-coupon bonds can be converted into ~356.6mn Cathay Pacific, ~5.9% of shares out. The initial exchange price is HK$13.18/Cathay share, a 2.9% premium to last close.

• This development follows Swire’s announcement in March this year it sold 153.05mn shares in Cathay at HK$11.74/share, raising HK$1.8bn for working capital.

The Trade:

• At 0.34x forward P/B, Swire Pac remains cheap. but elevated on a discount to NAV and implied stub basis.

• I’m disinclined to set up the stub here.

• I might be inclined to simply go outright long in Swire Pac here; but it’s not a strong conviction trade.

• I’d be disinclined to buy Cathay.

This insight is labelled bullish as I’m not bearish Swire Pac here.