Loss-making China Eastern's minority shareholders on Tuesday rejected the agreed sale of a 24 percent stake to Singapore Airlines, the world's most profitable carrier, and its parent, state investment agency Temasek for US$920 million.

Opposition to a deal that had Beijing's political blessing was led by China National Aviation Corp, parent of the country's top carrier Air China and a leading stakeholder in China Eastern .

CNAC, which had argued for weeks that the sale to Singapore was done on the cheap, said it will make a counter offer of at least HK$5 a share within two weeks, trumping the HK$3.80 Singapore offer.

Shares in the airlines seesawed wildly on Wednesday as investors tried to make sense of what may happen next in a tussle that highlights the unpredictability of China's corporate scene.

"China Eastern has some issues to work through with the supposed Air China offer. So we have to let them deal with it in time. There will be a little cooling-off period," Singapore Airlines spokesman Stephen Forshaw told reporters.

But he insisted SIA would not get into a bidding war.

"We are still talking to China Eastern and will continue this discussion. SIA is not walking away from this deal," he said.

China Eastern, squeezed by record fuel prices, has said it would try to get SIA and Temasek back to the negotiating table to try and get a better deal. The company's chairman said he was against any bid by Air China.

"There are too many uncertainties. China Eastern has said it is unwilling to accept an Air China offer," said Kelvin Lau, analyst for Daiwa Institute of Research. "And we're not sure if Singapore will raise its bid.

"The worst case scenario is that China Eastern goes it alone."

In Hong Kong, China Eastern shares dropped 4 percent, before rallying to close down 0.15 percent at HK$6.65. Air China fell nearly 5 percent, but ended 1 percent lower HK$10.20. Both underperformed the benchmark Hang Seng Index , which advanced 1.9 percent, its best day in six weeks.

While SIA signalled a lull in an increasingly bitter tug-of-war, ratings agency Fitch said China Eastern needed to move quickly to clarify its shareholding structure and improve its operations.

"CEA has to take quick actions to remedy its poor operating results," Jinqing Li, associate director at Fitch's Asia Pacific Corporates group said in a statement.

Singapore Airlines had hoped to gain access via the stake acquisition to a travel arena that's growing at 16 percent a year as increasingly wealthy Chinese take to the skies and which should get a boost from this summer's Beijing Olympic Games.

Analysts say China Eastern needs capital to relieve some of the burden of net gearing of 1,500 percent as it battles Air China and China Southern .

Air China, the world's most valuable airline by market capitalisation, is said to fear the creation of a strong competitor in the commercial hub of Shanghai, where it is traditionally weak.

In Singapore, SIA shares closed up 1 percent, but analysts said shareholders stood to gain, through a potentially increased dividend, if the Singapore carrier did not revive its bid.

"In the nearer term, the approximately S$860 million saved from the bid could translate into a higher dividend," Goldman Sachs analyst Matthew Chan said.

"The market may speculate there will be another bid. That will impact both China Eastern and Air China stock," said Conita Hung, director at Delta Asia Financial Group. "But China Eastern still faces a cloudy business outlook, and rising oil prices will also continue to impact airline stocks."

In Shanghai, Air China's locally-listed shares ended up 0.71 percent, while China Eastern's lost 1.75 percent.

"The collapse of the deal means China Eastern will remain a mismanaged company, and restructuring will be delayed," said Huatai Securities analyst Yu Jianjun. "This ends expectations of an industry restructuring that had pushed prices up." (

Additional reporting by Chua Baizhen and Melanie Lee in SINGAPORE, and Andrew Torchia in SHANGHAI; Editing by Ian Geoghegan

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