By Dong Zhixin (chinadaily.com.cn)
Updated: 2008-01-08 16:26

China Eastern Airline shareholders Tuesday voted down a planned stake sale to Singapore Airlines and Temasek Holdings after Air China parent promised a higher counter-bid.

Around 77.6 percent of China Eastern’s shareholders rejected the proposed sale.

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China Eastern's parent, China Eastern Group which holds more than 50 percent of the outstanding shares, can't take part in the vote.

Singapore Airlines and Temasek Holdings, an investment arm of the Singaporean government, announced in September that they would buy a 24 percent stake in the Shanghai-based airline for HK$3.80 per share.

That prompted accusations from shareholders and analysts that the price is too low and doesn't reflect the true value of one of China's largest airlines. China Eastern's Hong Kong shares closed at HK$6.66 Monday, while its Shanghai stock ended at 20.63 yuan.

China National Aviation Holding Company (CNAHC), parent of Air China, and its partner Cathy Pacific Airways of Hong Kong attempted to launch a counter-bid in September but pulled out abruptly, without revealing the reason. In December, CNAHC increased its holdings of China Eastern's H-shares to 12.07 percent.

On January 2, China National Aviation, a subsidiary of CNAHC and a major shareholder of Air China, voiced concerns over the proposed price, as well as over the anti-dilution and anti-competition arrangement.

Four days later, it said it would make a counter-bid of no less than HK$5 per share if the Singapore deal is rejected by shareholders. Cathy Pacific said they may support the counter-bid.

However, China Eastern raised questions about the sincerity of China National Aviation and insisted the price per share is fair. Singapore Airline made clear that it will not raise its price.

China Eastern also pointed out it had the approval of regulators, but the State-owned Asset Supervision and Administration Commission (SASAS) of the State Council said January 4 that they will let the market make the decision. SASAS is the owner of CNAHC and China Eastern Group.

China Eastern foresaw "gloomy results" on Tuesday morning as it said the Singpoare proposal will "very likely be put off temporarily" in an email to China Daily.

A vast number of shareholders who previously supported the deal have "changed their minds" after China National Aviation's annoucement, the email said.

The pessimism was confirmed when China Eastern's board secretary said before the vote started that the capital market does not trust tears, according to hexun.com.

The fight for China Eastern reveals an eagerness to establish Shanghai as a hub, which handled a record 51.6 million air passengers in 2007, an increase of 11.8 percent year-on-year.

China Eastern has a 33 percent market share in Shanghai, more than double of Air China's 15 percent.

Tuesday's outcome is a blow to Singapore Airlines, which hopes to gain a foothold in China's commercial capital to benefit from the country's surging demand in air travel. By 2026, China's domestic air travel may jump fivefold, according to Boeing Co.

(Jin Jing contributed to the report)