HAINAN Airlines Co, controlled by the investment arm of China's Hainan provincial government, plans to raise as much as 8 billion yuan (US$1.2 billion) in a private placement of shares partly to help pay bank loans.

The carrier will sell as many as 1.24 billion new shares at no less than 6.42 yuan apiece, it said in a filing to the Shanghai Stock Exchange yesterday. The target is 13 percent below its 7.35 yuan closing price last Friday. Trading in the shares has been suspended since Monday.

Hainan Airlines is expanding routes and adding planes amid rising competition from high-speed railways and surging travel demand in China. The carrier will use 6 billion yuan of proceeds to pay down debt as rising borrowing costs have had "an adverse effect" on operations, the airline said.

"Hainan Airlines has huge funding pressure because it can't get a capital injection from the central government," said Li Lei, a Beijingbased analyst with China Securities Co. "The placement can reduce its debt and support future plane purchases."

Larger rival Air China Ltd raised about 6.5 billion yuan in November in a share sale to investors, including its government-controlled parent China National Aviation Holding Co. China Southern Airlines Co got 10 billion yuan in a similar statebacked share sale last year, while China Eastern Airlines Corp raised 12 billion yuan in 2009.

Hainan Airlines has a debt-toasset ratio of 70 percent, the highest among China's listed airlines, according to Bloomberg News data. Air China has a ratio of 54 percent, based on its latest filing.

Hainan Airlines is a unit of HNA Group Co, China's fourth-largest aviation entity, which runs carriers, airports, hotels and department stores.

No more than 10 investors or individuals will be selected to buy the shares and the company's controlling shareholder and affiliates are excluded from the sale, the firm said.