SYDNEY: Virgin Australia is tapping investors in a cash call worth more than 80 percent of its market value, aiming to cut debt and cover restructuring costs as it targets lucrative Chinese tourist traffic.
Australia’s second-biggest airline yesterday said it would ask shareholders to subscribe to a fully underwritten rights issue worth A$852 million (US$630 million), compared with an existing market cap of about A$1 billion. Shares tumbled as the dilutive impact sank in.
The move should ease a debt pile built up during a costly battle for customers with market leader Qantas Airways Ltd. It also comes as Chinese investors close in on control of nearly 40 percent of the airline, stoking debate on foreign ownership.
Under the proposal, the outcome of a wide-ranging capital review, shareholders will be offered stock at A$0.21 per share, a 28.8 percent discount to Tuesday’s close. The stock closed down 11.86 percent at A$0.26.
The rights issue comes hard on the heels of last month’s sale of a stake to China’s HNA Aviation for A$159 million, raising fundraising efforts to more than A$1 billion.
Virgin Australia said HNA Aviation was among major shareholders who have committed to the rights issue. Chinese conglomerate Nanshan Group (南山集團), which last week agreed to buy a stake of nearly 20 percent from Air New Zealand, has also signed up for the deal, Virgin Australia said.
However, as a new boardroom takes shape at the airline, 24 percent stakeholder Etihad Airways has yet to commit to the issue, Virgin Australia said.
“The balance of the funds will be used to pay down debt,” chief executive officer John Borghetti told reporters.
According to Thomson Reuters data, Virgin Australia’s long-term debt stood at A$2.4 billion at the end of last year, giving it a debt-to-equity ratio at the time of 3.07 versus an airline industry median of 1.43.
Borghetti said moves to restructure the business, as it targets growth in Chinese tourism traffic in partnership with its new investor HNA, would involve a “realignment” of an unspecified number of jobs.
Savings will also come from reducing the number of aircraft types in its fleet, he said.
Virgin Australia returned to net profit in the first half of its fiscal year, which ended in December last year, after racking up three years of annual losses in its bruising price war with Qantas.
