Latam Airlines Falls in Chile After Confirming Share Sale

April 29 (Bloomberg) -- Latam Airlines SA, Latin America’s largest carrier, dropped the most since June after its chairman said the company plans to sell new shares as part of an effort to recover the investment grade it lost last year.

Latam retreated 2.8 percent to 9,786.2 pesos at the close in Santiago, its biggest drop since June 13. The Ipsa benchmark index fell 0.5 percent.

The airline, formed in July 2012 by Lan Airlines SA’s $3.3 billion takeover of Tam SA, will sell new shares to improve its debt ratios and return to an investment grade credit rating, Chairman Mauricio Amaro told reporters today in Santiago after its annual general shareholder meeting.

“Investment-grade is something that we will seek to return to, if not in the short term, certainly in the medium term,” Amaro said. “We are evaluating a capital increase at the moment.” Amaro wouldn’t comment on a specific date for the share sale or how much it plans to raise.

Latam’s credit rating was lowered to BB+, or one level below investment grade, by Fitch Ratings in June 2012. Fitch said that an increase in the rating would require a reduction in debt ratios.

The carrier’s ratio of net debt to earnings before interest, taxes, depreciation and amortization was 8 at the end of last year, compared with Lan’s 2.77 ratio at the end of 2010, according to data compiled by Bloomberg.

BCI estimates that Latam would have to sell about $1 billion in new shares to return to investment grade, according to a note to clients dated April 3.

“Investors in the market are selling on the news of potential dilution,” Oswaldo Pacheco, an analyst at Banco de Credito & Inversiones, said in a telephone interview from Santiago.

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