Shares in China Eastern Airlines and Singapore Airlines were suspended on Tuesday amid expectations that the Southeast Asian carrier would soon buy up to 25% of the Shanghai-based airline.
Both companies had no immediate comment. Singapore Airlines said it would make a statement after the market closed.
Loss-making China Eastern Airlines, which ranks among the top three carriers in the country, would most likely sell about 2 billion Hong Kong-traded shares to Singapore Airlines, while the state would subscribe for 1.3 billion new A shares, mainland Chinese media have reported.
That "would satisfy the dual objectives of giving SIA a 25% stake, while maintaining state control at over 50 percent", Merrill Lynch said in a research report on Monday.
China Eastern Airlines would sell up to a quarter of the airline to a foreign strategic investor, China Eastern chairman Li Fenghua told the Shanghai Securities News in a report issued on Monday.
Negotiations to secure equity investment from Singapore Airlines, the world's most valuable carrier, are "smooth" but a deal would depend more on regulatory support, Li said.
China Eastern's share suspension was pending an announcement and no further details were immediately available, the Hong Kong exchange said.
Shares of China Eastern Airlines ended at HK$3.73 on Monday in Hong Kong and its ADR ended up 9.36% in the U.S. market overnight. The stock has more than tripled over the past year.
Trading in China Eastern's A-shares in Shanghai was also suspended.
Singapore Airlines shares last traded at S$18.40 and are up 37% over the past year.