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Turbulence ahead as Chinese govt grabs key stake in Virgin

Business

One of Virgin’s biggest shareholders is in trouble and could be forced into a firesale of assets.

Print article

The impact if the coronavirus has come to the front door of Virgin Australia, with one of its biggest shareholders effectively taken over by a Chinese provincial government to prevent a collapse.

It comes as Australian investors remain skittish over the impacts of the virus outbreak while S&P downgraded its ratings for Virgin from stable to negative.

The ASX plunged immediately on its open this morning with a fall of more than 2 per cent taking it back to the levels of May last year.

The economic impacts of the outbreak are expected to mean the Reserve Bank will cut Australia’s official interest rates to a record low when its board meets tomorrow.

The trouble for Virgin is based on HNA Aviation, which holds a $200 million, (19.8 per cent) stake in Virgin Australia. The two struck an alliance in 2016 to codeshare and promote their routes.

HNA is China’s fourth-largest carrier and was privately held. It was behind a boom in Chinese investment five years ago, which was reined in by government officials when its debt ballooned.

Over the weekend the Hainan Government and the China Development Bank moved in to manage the risks at the company.

The intervention, brought about by the slowdown in travel following the coronavirus outbreak and HNA’s $US75 billion ($115.27 billion) debt, will almost certainly add extra pressure on the company to offload assets.

The company was already teetering before the weekend move and released a list in December of assets it was willing to sell. The Virgin stake was not included.

The Financial Times reported that HNA said it had been working to “save itself” for more than two years, but “had not been able to completely resolve its risks” and now faced an even more difficult situation because of the epidemic.

Hong Kong Airlines, also part-owned by HNA, announced over the weekend that it would cut 400 jobs while Virgin has cut its routes to Hong Kong.

Virgin’s shares have fallen almost 30 per cent since the start of the year and opened at 11 cents.

The company said it would not comment on its shareholder.

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