Our Initial Thoughts
 CITIC Pacific Divesting CX? — We believe CITIC Pacific is divesting its Cathay
Pacific stake to Air China and believe CITIC could divest its 17.5% stake in its
entirety. If Air China’s stake is viewed in isolation its stake in CX will rise from
10.15% to 27.64%. However, we believe because CNAC is a connected party
(which owns 7.34%) that Air China’s current combined stake will actually be
viewed as 17.5%. Therefore post any acquisition, Air China's stake could rise to
35%, meaning we cannot rule out a General Offer (GO) being triggered.
 Paving the Way — We forecast CX gearing will rise from 81% (its highest ever
level) at 1H09 to 94% by the end of 2009. The removal of CITIC, and their
financing constraints, could pave the way for a rights issue, given comments by
CX management saying they no longer rule out an equity issue at their last analyst
briefing. To bring gearing down to historic norms, CX could raise up to HK$15bn.
 Swire Cashed Up — Interesting to note that Swire completed a US$500m
guaranteed notes (due 2019) offering, priced at T+190bps on August 13th , 2009.
It clearly has the ability to fund its share of any issue. Already trading at a 1 S.D.
premium to its mean NAV discount, we maintain Sell (3M, TP HK$73.50).
 What about CITIC — Despite a potential cash infusion from the transaction, we
see little improvement to CITIC’s stretched balance sheet. 2010E net gearing
could improve from ~125% to ~110% after the deal. However, we maintain that
this group has one of the worst balance sheets amongst our coverage universe.
Maintain Sell (3H, TP HK$13.00).