Shandong Airlines seeks emergency loan as pandemic losses hit
State supported Shandong Airlines Co. Ltd. (200152.SZ) is seeking an emergency loan from major political lender China Development Bank (CDB), highlighting its struggles with huge losses and rising debt even as air transport rebounds across the country after plummeting l year in the midst of the Covid-19 pandemic.
The company is asking for no more than 2.6 billion yuan ($ 406.6 million) in one-year emergency loan from the CBD to replenish cash flow and cover “operating expenses” such as kerosene , wages and rent, according to a Monday filing (link in Chinese) on the Shenzhen Stock Exchange.
The loan will not involve collateral and reflects the support offered by the government and financial institutions to industries affected by the pandemic, according to the file.
Shandong Airlines has come under enormous financial pressure after passenger flight revenues fell last year as the pandemic curtailed domestic travel. As a result, the company reported (link in Chinese) net loss attributable to shareholders of 2.4 billion yuan, a reversal from a net profit of 361 million yuan in 2019. It also reported (link in Chinese) a net loss of 835.1 million yuan in the first three months of 2021.
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The company’s liabilities swelled as it borrowed more and more money to deal with liquidity risks. Short-term borrowing jumped 566.3% and long-term loans jumped 657.1% last year, according to its annual report. Total liabilities fell from 12.2 billion yuan at the end of 2019 to 19.8 billion at the end of 2020, then 34.7 billion yuan at the end of the first quarter of this year, according to its financial reports.
Last week, the rating agency China Lianhe Credit Rating Co. Ltd. lowered (link in Chinese) Shandong Airlines ‘overall rating from highest to AAA to AA, second highest, citing credit risks resulting from huge loss, falling owners’ equity and increasing the debt.
The agency kept Shandong Airlines’ outlook as “stable” as it expects a rebound in the company’s business performance, as air travel across the country has shown signs of recovery after efforts to bringing the epidemic under control have been largely successful.
This is not the first time that Shandong Airlines has borrowed from CDB to help it cope with the fallout from the Covid-19 epidemic. Last year, the company received an emergency loan of 2 billion yuan at an interest rate of 2%, according to China Lianhe.
Analysts at Ping An Securities Co. Ltd. have estimated that Chinese airlines will see a rebound in business performance in the second and third quarters of 2021, with some potentially returning to profit as flights have rebounded in recent months.
In April, passengers traveling on airlines topped 51 million individual trips, an increase of 206% year on year and the highest level since the start of the epidemic, and equivalent to 96% of levels of before Covid-19, according to Ping An Securities.
However, they warned of the lingering impact of Covid-19 on some airlines, with the recent resurgence of cases in southern Guangdong province.
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