Nomura said it is maintaining its "sell" recommendation on China Eastern Airlines (CEA) as delays in introducing a strategic investor have put the Shanghai-based carrier under financial difficulties.

In a note, Nomura said it has forecast CEA's 2008 net gearing at 1,275 pct, adding that it expects the company to fund capital expenditure needs through bank loans.

Nomura also said it does not rule out the possibility that CEA will seek equity financing at some point, although such a move seems unlikely in the current operating environment.

In January, CEA's minority shareholders voted against selling a 24 pct stake to Singapore Airlines and Temasek for about 7.2 bln hkd.

Nomura noted that SIA's chairman said he would not be surprised if CEA does not resubmit the joint SIA-CEA proposal to shareholders by the deadline of Aug 9.

The chairman also said high oil prices may prompt SIA to change its investment strategy and consider keeping more cash to cover any unexpected developments, according to Nomura.

"The chairman's comments are in line with our expectations, and we think the proposal is unlikely to resurface for some time [if at all]," the brokerage said.

"Recall that it took two years to agree on the current proposal, so its lapsing and the current high oil price mean a renegotiation would take time," it added.

Nomura also noted that Air China and CNAC are still opposed to the deal, and that it would be difficult for CEA to win approval from minority shareholders without the go-ahead from those two.

The brokerage has a target price of 2.20 hkd on CEA.

The airline's shares in Hong Kong were down 0.03 hkd or 0.88 pct at 3.37 at 3.41 pm.

(1 usd = 7.8 hkd)