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September 03, 2007

Singapore Airlines Makes A Cool $1 Billion in 1 Day on China Eastern Investment

posted by MR WAVETHEORY at 9/03/2007 12:49:00 AM

Want to see what men look like when they are about to make a cool $1 billion? The picture above: the guy from Singapore airlines, CEO Chew Choon Sheng, and the guy from CEA Li Fenghua, chairman of CEA, shaking hands! Welcome to the old boys club of China!

Singapore Airlines announced their investment in China Eastern Airlines Corp Ltd. (ADR) (NYSE CEA) yesterday and today, when the Hong Kong stock market opened, the shares practically doubled (HK 0670.HK). That's probably the fastest $1 billion that any strategic investor has ever made - that I know of! Crazy times! China Eastern Airlines is traded in Shanghai (Shanghai 600115.ss), Hong Kong, as well as New York. The Shanghai shares nudged up about 10% on the news which is hardly worth a mention, but the Hong Kong shares went up 80%! Talk about inefficient markets!

I wrote about this company yesterday when they announced the investment and I postulated that this would be a wonderful investment. Little did I know how quickly and how wonderful it would be! Making $1 billion on paper in one day is no small feat unless you're Merlin the magician! Kudos to Temasek and the team at Singapore Airlines. This one deal will now cover the writeoff and losses they made on their Air New Zealand and Virgin Atlantic Airways investments!

Let's take a look and these divergent markets!

Shanghai China Eastern - RMB 10.56 +.96 (+10%)
Hong Kong China Eastern - HK 6.67 +2.94 (+78%)
New York China Eastern - $48 (No trade until Tuesday due to Labor Day holiday)

Forbes says the HK China Eastern shares surged as much as 88%. Bloomberg says there will be more mergers in China - including Shanghai Airlines.

The government is pushing airlines to merge as it opens skies to overseas rivals. China's five largest carriers, including Shanghai Airlines, all rose by 10 percent daily limit today in Shanghai.

My bet is that the New York China Eastern shares will open at around $100. The float is only 3.8 million shares in New York which means some potentially explosive trading on Tuesday. It's a truly OMG moment! Woe to the poor fools who shorted 50K shares of CEA before the halt. Whoever said never a borrower nor a lender be was a wise man indeed!

PS Update: As much as people (aka Americans) complain about insider trading in China, I have to give kudos to China Eastern Airlines for halting the stock while they negotiated the deal with Singapore Airlines, so that there couldn't be any sort of funny business going on with insider trading. The China Securities Regulatory Commission deserves a round of applause for their good work and vigilance in patroling market activity. On the same note, the SEC could have done a better job in recent months. For instance, the SEC could have halted Dow Jones stock before the talks with News Corporation proceeded and saved alot of investors good money and made money for them too if they had done their job! There's something that Americans can learn from the Chinese.

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