Air China (CA, Beijing Capital), the second-largest shareholder of Cathay Pacific (CX, Hong Kong International), will sell 108,080,000 shares of the Hong Kong carrier, representing a 1.6% stake, for a total consideration of approximately HKD1.3 billion Hong Kong dollars (USD169.5 million).

The transaction prices the shares at HKD12.22 (USD1.57) apiece. Air China expects to complete the sale by January 8 and estimates a profit before tax, after all fees and transaction costs, of CNY182 million yuan (USD26 million) from the disposal.

This divestment reduces Air China's shareholding in the Hong Kong-based carrier from 28.7% to 27.1%. The move is a precursor to Cathay Pacific's planned off-market share buyback of 643,076,181 shares currently held by Qatar Airways (QR, Doha Hamad International). The transaction will reduce the total number of issued Cathay Pacific shares from 6.72 billion to 6.08 billion.

The sale of Air China's stake was necessary to ensure that after the buyback of Qatar Airways shares, its stake rises only to 29.98% - below the 30% threshold that would trigger a mandatory general offer.

Following the share sale and the proposed buyback, the Cathay Pacific shareholding of Swire Pacific is projected to rise from the current 43.1% to 47.7%. Swire Pacific has applied for a waiver regarding the mandatory general offer obligation that typically applies when a major shareholder increases its stake by more than 2% in a 12-month period.

Air China has agreed to a 180-day lock-up period for its remaining shares following the completion of the sale. It has also updated its irrevocable undertaking to vote in favour of the buyback proposal at the upcoming general meeting.

"The company remains an important strategic shareholder of Cathay Pacific and continues to be optimistic about Cathay Pacific's development prospects," Air China said in its announcement.

Cathay Group CEO Ronald Lam Siu-por said the sale was "tactical" and would not affect the long-term status of Air China as a strategic investor in Cathay Pacific.