British Airways Owner to Raise $520 Million in Convertibles

British Airways owner International Consolidated Airlines Group SA (IAG) said it raised 390 million euros ($507 million) in convertible bonds to fund the takeover of Spanish discount carrier Vueling SA.

The senior unsecured bonds due 2018 can be handed over for stock in London-based IAG when the shares rise to 4.25 euros, a premium of about 35 percent to the average market price during the sale, the company said in a statement today. The notes will carry a coupon of 1.75 percent payable semi-annually, and will raise the number of IAG shares outstanding by as much as 5 percent if fully converted, it said.

“The terms of the deal make it look cheap for investors,” said Haidje Rustau, a convertible bonds analyst at Mitsubishi UFJ Securities in London. “I would have expected it to be more expensive. Issuance has been thin recently but demand is still there and people are starved.”

Sales of convertible bonds by European corporates have stalled after a record first quarter when companies including Air France-KLM Group, Europe’s largest airline, and Italian oil company Eni SpA raised $10.05 billion, according to data compiled by Bloomberg. Since March 30, Salmon farmer Marine Harvest ASA, and Glencore Xstrata Plc, the biggest commodities trader, sold another $751 million of the securities.

Vueling Acquisition

IAG, which already held 45.85 percent of Barcelona-based Vueling, raised its stake to 90.51 percent last month after the majority of remaining investors accepted its offer of 9.25 euros a share in a 123.5 million-euro transaction. Chief Executive Officer Willie Walsh said Vueling will remain a standalone unit within IAG and will cooperate with its unprofitable Spanish unit Iberia, which is cutting short-haul flights.

“We are raising cash to fund our acquisition of Vueling, an airline that will be a great addition to IAG,” Walsh said in the statement. “It will also enable IAG to have cash available to improve general liquidity and improve the credit profile of the group.”

Banco Santander SA, Barclays Plc, Deutsche Bank AG, Morgan Stanley and UBS AG managed the transaction.

The bonds are expected to be issued on May 31, IAG said.

IAG’s stock has gained 44.2 percent this year and was trading at 266.8 pence at 10:35 a.m. in London, valuing the company at 4.95 billion pounds ($7.5 billion).

To contact the reporters on this story: Robert Wall in London at rwall6@bloomberg.net; John Glover in London at johnglover@bloomberg.net

To contact the editor responsible for this story: Shelley Smith at ssmith118@bloomberg.net

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