(Yicai Global) March 23 -- Air China has acquired a majority stake in Shandong Aviation Group, the parent firm of Shandong Airlines, and is offering to buy up shares in the bankrupt carrier from other shareholders in a bid to save it.

Air China paid CNY33 million (USD4.8 million) to hike its stake in Shandong Aviation to 51.7 percent from 49.4 percent through the acquisition of the 2.3 percent equity held by Shansteel Financial Holdings Asset Management (Shenzhen) and Qingdao Qifa Commerce and Trade, the country’s flagship carrier said yesterday.

This gives it indirect ownership of an over 30 percent stake in Jinan, eastern Shandong province-based Shandong Airlines which meets the threshold for a tender offer.

Air China is offering to buy equity in Shandong Airlines from small and medium shareholders at a price of HKD2.62 (USD0.33) a share, it said. This is considerably less than the firm’s closing price of HKD4.73 today, but the tender offer was determined in June last year when Air China first announced that it would bail out Shandong Airlines based on the weighted average price of the carrier’s shares in the 30 days before the announcement was made. The bid is valid until April 21, it added.

Air China also plans to invest a further CNY6.6 billion (USD966.2 million) in Shandong Aviation to give it a 66 percent stake. Another stakeholder, Shandong Hi-Speed, is infusing an additional CNY3.4 billion, and will own the remaining equity together with Shandong Finance Investment Group. After the cash injection, Shandong Aviation’s registered capital will jump to CNY10.5 billion from CNY580 million.

Shandong Airlines accrued losses of CNY1.8 billion (USD263 million) in 2021 and its debt-to-asset ratio reached 102.81 percent, making the carrier technically insolvent and triggering a warning from the stock exchange, according to an earlier earnings report.

Shandong Airlines’ share price [SHE:200152] closed down 5 percent at HKD4.73 (USD0.60) today. The stock has sunk by the exchange-imposed limit of 5 percent for two straight trading days. The trading of companies in danger of being delisted is capped at 5 percent in either direction, as opposed to 10 percent for ordinary stocks.

Shandong Airlines, although listed on the Shenzhen stock exchange, is traded in Hong Kong dollars which are known as B-shares. New listings and refinancing in the B-share market ceased in 2000, making it difficult for Shandong Airlines to raise the funds it needs to get out of this crisis.

Editor: Kim Taylor