Hong Kong’s Airport Authority in talks with banks for US$2.6 billion loan to fund construction of third runway
- The five-year facility, which is also meant for general corporate purposes, offers an interest margin of 72 basis points over the Hong Kong interbank offered rate, according to people familiar with the matter
- Hong Kong Airport Authority also announced a HK$2 billion relief package for the aviation sector, taking the total to HK$4.6 billion in four rounds so far
Hong Kong’s Airport Authority (AA), which is in talks with banks for a HK$20 billion (US$2.6 billion) loan to help fund the city’s third runway, announced another round of relief package for the aviation industry valued at HK$2 billion on Wednesday.
The five-year facility for the runway, which is also meant for general corporate purposes, offers an interest margin of 72 basis points over the Hong Kong interbank offered rate (Hibor) and a top-level all-in of 82 basis points, reported Bloomberg, citing people familiar with the matter who are not authorised to speak publicly and asked not to be identified.
“During this difficult time, the AA has been trying its best to support business partners. As an integral part of the aviation industry, the AA is also facing a significant shortfall in revenue because of the traffic plummet,” a spokesperson for the AA said. “The AA will go to the financial market in the next two months to raise the necessary funds, in order to maintain its own liquidity for funding the airport operation and the committed capital projects. The loan will also be used to finance the new relief package.”
AA has a HK$5 billion five-year revolver due December, data compiled by Bloomberg show.
The fundraising comes even as air traffic has plunged in the wake of the coronavirus pandemic. Funding costs have also risen for banks in Greater China amid a global dollar liquidity squeeze.
Hong Kong’s third runway project is due for completion in 2024. The project includes a 3,000 metre long new runway and a 280,000 square metre passenger building. According to the Airport Authority’s website, construction costs would amount to HK$141.5 billion, with a further HK$22 billion invested for environmental protection measures. Funding would be provided by bank loans, Hong Kong International Airport’s operational surplus and an airport construction fee levy on departing passengers.
It is a key part of plans by Fred Lam, chief executive officer of Airport Authority Hong Kong, to grow the number of passengers the airport handles to 120 million by 2035, from 74.7 million in 2018, and cargo from 5 million tonnes to 10 million tonnes in the same period.
The loan comes as competition is growing from the Greater Bay Area (GBA) - a master plan to integrate Hong Kong, Macau and nine cities in Guangdong province into a business and economic hub - and Hong Kong’s tourist arrivals have been significantly hit due to anti-government protests and this year’s outbreak of coronavirus.
In another bid to help alleviate pressure on airlines and aviation services companies, the Airport Authority announced a fourth round of relief measures worth nearly HK$2 billion, taking the total so far to HK$4.6 billion.
The AA said in an announcement that it would buy around 500,000 air tickets in advance from the four home-based airlines. These will be given away to global visitors and Hong Kong residents as part of a market recovery campaign that will be launched when the pandemic is over. Cathay Pacific, Cathay Dragon HK Express and Hong Kong Airlines will benefit from the advance ticket purchases.
As part of the relief measures, the AA said aviation support service operators could also sell ground service equipment to the authority for upfront cash to help improve their cash flow.
Additional reporting by Bloomberg
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