CATHAY PAC AIR (HKG: 00293) shares experienced a significant drop in early trading, falling more than 7%. At the time of writing, the stock was down 5.93% to HK$12.05, with a turnover of HK$809.183 million.

Background on the Market Movement

The decline follows an announcement from its major shareholder, Swire Pacific. The conglomerate's wholly-owned subsidiary, Swire Pacific Finance, is issuing convertible bonds with a total principal amount of HK$4.7 billion. The initial exchange price for these bonds is set at HK$13.18 per Cathay Pacific share.

Potential Dilution and Shareholding Shift

If the bonds are fully exchanged at this price, they would convert into approximately 357 million Cathay Pacific shares. This would represent about 5.9% of the company's issued share capital post-exchange. As a result, Swire Pacific's stake in Cathay Pacific would decrease from its current level to 39.2%. Despite this reduction, Swire would remain the largest single shareholder.

Recent History of Share Sales

This move comes after a similar transaction earlier this year. In March, Swire Pacific reduced its stake in Cathay Pacific through a share placement. The shares were sold at HK$11.74 each, involving a total of 153 million shares, which was about 2.52% of Cathay's total issued shares. The placement raised nearly HK$1.8 billion for Swire, which was subject to a 180-day lock-up period following the deal. After that placement, Swire's holding in Cathay decreased from 47.64% to approximately 45.12%.