Virgin Australia Holdings Ltd. (VAH), the country’s second-largest carrier, said it plans to raise A$350 million ($328 million) in a share sale that allows airlines that are its biggest investors to lift their stake to 70 percent.
The carrier’s three largest shareholders, Air New Zealand Ltd., Etihad Airways PJSC, and Singapore Airlines Ltd., currently have 62.6 percent of the company and may lift that to 69.8 percent if they take the maximum stake in the raising, the Brisbane-based company said in a regulatory statement today. They’ll fund between A$220 million and A$316 million of the entitlement offer, according to an investor presentation.
The capital raising will help reduce debt that Virgin took on to fund its fight with Qantas Airways Ltd. for a share of Australia’s domestic travel market. Virgin has spent at least A$1.54 billion on capital projects since Chief Executive Officer John Borghetti, a former Qantas senior executive, took over in 2010 and its debt ratios are the fourth-highest among global airlines, according to data compiled by Bloomberg.
“We are pleased that our major shareholders have indicated their support for the offer,” Neil Chatfield, Virgin Australia’s chairman, said in the statement today. “Significant further benefits can be achieved from our alliances as we continue to deepen relationships with our partners.”
Air New Zealand and Singapore Air may jointly take over Virgin Australia in the medium term, Macquarie Group Ltd. analysts wrote in an unsigned note last month. The carriers have “overlapping strategic interest and the prospect of an improved relationship,” the analysts wrote.
Under the terms of the fully underwritten entitlement offer, shareholders will be able to buy 5 new shares for every 14 they already hold for 38 Australian cents, a 6.2 percent discount to the stock’s 40.5 cents closing price yesterday. The shares were halted before today’s announcement.
The shares have slipped 3.6 percent this year, compared to a 15 percent gain in the S&P/ASX 200 benchmark index.
The three airline shareholders have all committed to take up their full entitlements and enter agreements that could increase their stakes, according to the statement. Richard Branson’s Virgin Group will put in A$35 million to maintain its existing 10 percent stake.
The three airlines offered A$90 million of credit lines to the Australian carrier as part of about A$223 million of secured debt, lease-back agreements and loan facilities with associates that it entered during the 2013 financial year. Those airline credit lines will be closed as a result of the share sale, the company said today.
Virgin has also issued $797 million in bonds secured against its aircraft as it adds flights and upgrades lounges and business-class seats to crack Qantas’s 65 percent share of Australia’s domestic market.
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