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UPDATE 3-Cathay Pacific raises $870 mln in convertible bonds to shore up liquidity, shares plunge

* Shares down as much as 9.7% in worst session since Oct 2008

* Bonds will dilute existing shareholders on conversion

* Cathay has warned of rising cash burn due to quarantine rules

* FedEx plans to relocate HK-based pilots to San Francisco-memo (Updates closing stock price)

Jan 28 (Reuters) - Hong Kong’s Cathay Pacific Airways Ltd said on Thursday it would issue HK$6.74 billion ($869.51 million) of convertible bonds to shore up liquidity, sending shares down as much as 9.7% in the worst daily decline in more than 12 years.

The stock ended at its intraday low of HK$5.95 per share, its lowest close since Nov. 9. That compared with a 2.6% fall in the benchmark Hang Seng Index.

The five-year bonds will be dilutive to existing investors, representing 10.89% of the company’s enlarged capital once they are converted into shares.

The bonds have an initial conversion price of HK$8.57 a share, a 30% premium to its last closing price before the issue was announced, and will carry a coupon rate of 2.75%, the airline said in an announcement to Hong Kong’s stock exchange.

Cathay on Monday warned passenger capacity could be cut by about 60%, cargo capacity would fall by 25% and its monthly cash burn would rise if Hong Kong enacts new COVID-19 measures that would require flight crew to quarantine for two weeks upon their return home.

The airline said the expected move would increase monthly cash burn by around HK$300 million to HK$400 million, on top of the current HK$1 billion to HK$1.5 billion.

Freight carrier FedEx Corp will temporarily relocate its Hong Kong-based pilots to San Francisco because of the expected hotel quarantine requirements for flight crew, it said in a memo to crew.

To help bolster its balance sheet while international borders remain closed, Cathay last June received a $5 billion rescue package led by the Hong Kong government.

Assuming full conversion of the bonds and the Hong Kong government’s exercise of warrants, top shareholder Swire Pacific Ltd’s stake in Cathay will be diluted to 37.9% from 45% and Air China Ltd’s stake will fall to 25.3% from 30%. ($1 = 7.7515 Hong Kong dollars) (Reporting by Jamie Freed in Sydney; additional reporting by Donny Kwok in Hong Kong; Editing by Sam Holmes, Gerry Doyle and Mark Potter)

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