June 19, 2017 / 8:30 AM / 3 years ago

China Eastern sells stakes in cargo unit to four firms

SHANGHAI (Reuters) - China Eastern Air Holding said on Monday it has sold almost half of its freight unit to four firms including Legend Holdings (3396.HK) and Global Logistic Properties (GLP) GLPL.SI in the Chinese aviation sector’s first mixed-ownership reform deal.

The parent company of China Eastern Airlines (600115.SS) (0670.HK) said in a statement it signed the deal for Eastern Air Logistics with the four companies, which also include Chinese express delivery firm Deppon Logistics and Greenland Financial, at a ceremony in Shanghai.

The deal comes as China has prioritized implementing mixed ownership reforms to revamp the country’s bloated and debt-ridden state sector. The reforms envision private capital investing in firms run directly by the central government.

China Eastern Air Holding (CEA Holding) said it will retain a 45 percent stake in the cargo unit, while Legend Holdings, GLP, Deppon and Greenland Financial will hold 25 percent, 10 percent, 5 percent and 5 percent respectively. The remaining 10 percent will be held by Eastern Air Logistics’ core employees.

Financial terms of the deal were not disclosed. However, CEA Holdings said 4.1 billion yuan ($601.61 million) of state and non-state capital was invested in the freight unit, bringing its debt ratio down to 75 percent, from 87.86 percent at the end of 2016.

The deal aims to turn the company into a “world-class air logistics national team capable of competing with FedEx, UPS and DHL, and will pave the way for the reform of China’s state-owned enterprises,” CEA Holding said in the statement.

Eastern Air Logistics will be involved in logistics real estate, cross-border e-commerce and express delivery through its new shareholders, it added.

China Eastern Airlines sold Eastern Air Logistics to its parent in February for 2.43 billion yuan ($356.57 million), saying the unit’s shrinking market share and debts were crimping the airline’s overall operating performance.

Air China (0753.HK)(601111.SS) is also expected to introduce mixed-ownership reforms in its air freight logistics business after it gained approval from China’s top state planner in April.

($1 = 6.8150 Chinese yuan)

Reporting by Brenda Goh; Editing by Gopakumar Warrier and Sunil Nair

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