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.