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 as it navigates the challenges posed by the COVID-19 pandemic. The five-year 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. To help bolster its balance sheet while international borders remain closed, Cathay received a $5 billion rescue package led by the Hong Kong government last June. 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; Editing by Sam Holmes)