(Yicai Global) June 1 -- China Southern Airlines’ stock price plunged after the country’s largest passenger carrier said it plans to raise USD2.8 billion through two private placements of shares to purchase new airplanes and supplement working capital.

China Southern [SHA: 600029] closed down 7.7 percent at CNY5.79 (81 US cents) in Shanghai today. Its Hong Kong-listed shares [HKG: 1055] slumped 6.2 percent to HKD4.23 (54 US cents).

The Guangzhou-based airline said late yesterday that it is preparing to sell CNY17.5 billion (USD2.5 billion) new Shanghai shares and HKD2.9 billion (USD370 million) new Hong Kong shares to selected investors.

A private placement, in which additional stock is issued to specific investors to raise funds, dilutes the number of a listed company’s outstanding shares, often leading to a short-term decline in the stock price.

Nearly CNY12.3 billion from the Shanghai share sale will be used to buy 50 planes of the Airbus A320 Neo family, China Southern added, noting that the remainder will go to boost working capital. Meanwhile, the proceeds from the private placement in Hong Kong will be added to the company’s funds for general operations.

The stock sales will help expand the size of China Southern’s fleet to satisfy the increasing demand for air transport in the Guangdong-Hong Kong-Macao Greater Bay Area, ease the liquidity pressures caused by the slow recovery of the civil aviation industry, and enhance the company’s comprehensive anti-risk capability, China Southern said.

Airbus A320 Neo planes are among the world’s best-selling short- and medium-haul jets, China Southern pointed out. The 50 planes will cost about USD6.4 billion, according to the catalog price dated January 2020 on the European aircraft manufacturer’s website.

China Southern’s controlling shareholder, China Southern Air Holding, will be the leading investor in the private placement of shares on the Shanghai Stock Exchange, while China Southern Air’s unit Nan Lung Holding will subscribe to all the newly-issued shares on the Hong Kong Stock Exchange.

As China Southern Air directly has a 51.9 percent stake in China Southern Airlines, and Nan Lung directly and indirectly owns a 14.6 percent stake, the placements will be deemed as connected transactions, China Southern noted, without saying how much the shareholding ratios of the two companies will increase after the sales.

Editor: Futura Costaglione