The Government's Cathay Pacific Airways rescue package includes a built-in mechanism for the company to repay the loans before the Government can exit, Financial Secretary Paul Chan said today.

According to the plan announced earlier in the week, the Government will invest about $27.3 billion in Cathay Pacific comprising preference shares with detachable warrants of around $19.5 billion and a bridging loan of about $7.8 billion.

Speaking to reporters this morning, Mr Chan said: “One of the conditions for the Government to step in to invest in Cathay Pacific is that so long as the government loans and preference shares have not been fully repaid by Cathay Pacific, Swire Pacific has to remain as the controlling shareholder of Cathay Pacific."

Noting that the rescue package was designed in such a way as to facilitate the Government’s exit, he said the bridging loan has an availability period of 12 months from the day the package was announced.

“If they need to use the money they can drawdown, but they have to repay us within 18 months with interest. As the bridging loan is available for a limited period of 12 months only, so by that design, the bridging loan itself has an expiry date and has an exit mechanism.”

Regarding the preference shares, Mr Chan said the coupon rate will increase with the passage of time to incentivise Cathay Pacific to redeem them as early as possible.

“The coupon rate for the first three years is 3%, the fourth year 5%, and then 7% and 9%. Given currently the liquidity in the market is very ample, generally speaking, 7% or 9% coupon rate is rather high in terms of financial costs.

“So the design of this dividend rate applicable to the preference shares gives the incentive to Cathay Pacific to redeem our shares as early as practically possible.“