China's state assets watchdog on Friday issued an indirect denial of reports it had pressured shareholders of China Eastern Airlines into approving an investment by Singapore Airlines.

 

The Financial Times reported earlier in the week that the government was trying to persuade shareholders to agree to China Eastern's 24 percent stake sale to SIA and Lentor Investments, a unit of Temasek Holdings after Air China expressed reservations over the proposed deal.

 

In a vague, two-sentence statement which made no mention of China Eastern, the State-owned Assets Supervision and Administration Commission (SASAC) said, "Chinese central-government-owned companies conduct business independently and in line with market principles."

 

"We support the state-owned giants having overseas strategic investors."

 

The planned sale is shrouded in uncertainty after China National Aviation Corporation (Group) (CNAC), a major CEA shareholder, said on Thursday it would make a counter-offer if shareholders reject the deal at a meeting to be held in Shanghai next Tuesday.

 

The CNAC, which holds 12.07 percent of China Eastern's H shares, is a wholly-owned subsidiary of China National Aviation Holding Company (CNAHC), parent of flag carrier Air China.

 

The Hong Kong-based company said Wednesday that the offer price of 3.8 H.K. dollars does not reflect the fair value of China Eastern and the deal is unfair to other shareholders and domestic airlines as it includes anti-dilution rights and a non-competition clause.

 

The CNAC went further to say that the deal is a potential hurdle to the future development of the nation's civil aviation industry.

 

The CNAC added that it will not accept an unrevised deal, calling for a renegotiation and deal revisions to make it more acceptable to other shareholders.

 

The CEA, however, responded that it would not consider deals other than the one with SIA, adding the offer price is reasonable as it was agreed after long, market-based talks between the carriers.

 

The response has aroused discontent from many small and medium-sized shareholders, complaining that the airline fails to take into consideration their interests by blocking potential higher price bidding, the China Securities Journal reported Saturday.

 

The CNAHC and Hong Kong-based Cathay Pacific Airways have offered in September to buy rival CEA's H shares at a higher price of 4.85 H.K. dollars apiece, earlier media reported.

 

The potential higher-priced offer may help to sway other shareholders away from CEA's tie-up plan. It needs approval of two-thirds of the small and medium-sized H and A shareholders before becoming effective.

 

The deal, if passed, can offer CEA managerial expertise apart from cash injection, and SIA access to China's rapidly growing aviation market in return.

 

The market is currently dominated by three state-owned airlines, Air China, China Eastern and China Southern, based in the metropolises of Beijing, Shanghai and Guangzhou, respectively.

 

Li Jiaxiang, CNAHC general manager and board chairman of Air China, was recently promoted to the head of General Administration of Civil Aviation.

 

Li has been longing for an alliance with China Eastern to gain more access to Shanghai market, a move to build Air China into a "super carrier" to better vie with foreign rivals for larger market shares.

 

(Xinhua News Agency January 6, 2008)