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China Eastern Airlines up in Hong Kong amid talk of Cathay bid


Hong Kong (XFN-ASIA) - China Eastern Airlines Corp shares were

higher following reports that Cathay Pacific Airways Ltd is seeking to invest

in the mainland's third-largest carrier.

At 11.30 am, the stock was up 0.2 hkd or 2.06 pct at 9.92, after hitting a new all-time-high of 10.5.

The South China Morning Post reported over the weekend that Cathay may launch an attempt to buy a significant stake in China Eastern Airlines and use the holding to try and scupper Singapore Airlines' deal to acquire a stake in the mainland carrier.

It also said that Cathay may use its alliance with Air China to block the Singapore Airlines deal at a China Eastern shareholder meeting in December.

The UK's Daily Telegraph reported that Cathay could value China Eastern at about 4 bln usd.

"It's clear that Cathay doesn't want Singapore Airlines to buy the Shanghai-based airline and enter the China market," said Francis Lun, general manger at Fulbright Securities.

"Cathay's potential bid, if it materializes, will solidify its position in China after its move last year to cross hold stake in Air China," he said.

Cathay and Air China currently hold 17.5 pct stakes in each other.

Singapore Airlines said earlier this month that it has agreed to acquire a 15.7 pct stake in China Eastern, while Singapore government's investment arm Temasek Holdings will buy 8.3 pct of the Chinese carrier.

Their combined offer for the 24 pct stake amounts to 7.2 bln hkd.

Lun said Cathay may be of the view that Singapore Airlines's bid is too cheap and that it could offer a better price as China Eastern Airlines shares haven risen a lot in recent sessions.

Singapore Airlines's bid represents a price of 3.8 hkd per China Eastern share.

Peter Lai, sales director at DBS Vickers, said China Eastern Airlines shares may not see much upside in the near term after gaining more than 165 pct in a month.

"I don't expect further huge upside in China Eastern Airlines even after Cathay makes an official announcement. The market had already factored in Cathay's reported bid," he said.

Lai said that analysts will focus on what price, if any, that Cathay will offer for China Eastern.

Cathay Pacific shares remain suspended. The company is expected to release an announcement sometime today. It last traded at 22.7 hkd Friday morning,up 10.73 pct .

Meanwhile, Air China also sought trading suspension today pending an announcement. It last changed hands at 11.84 hkd, up 1.54 pct.

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