Industrials

Air NZ rights issue could be executed at 35% discount

Wed 30 Mar 22, 4:34pm (AEST)
Air NZ

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Key Points

  • NZ’s border reopens to Australia on April 13
  • Air NZ to raise $1bn-plus
  • Deal discount could be as much as 35%

In anticipation of NZ’s borders reopening to Australia on April 13, and to the rest of the world in May, the country’s beleaguered national carrier, Air NZ (ASX: AIZ) is planning to strengthen its balance sheet via a $1 bn-plus equity recapitalisation.

While the airline stands to benefit from a long-awaited covid recovery narrative, management is expected to give a pending rights issue an added nudge by offering a hefty discount to the last close.

Market whispers suggest the company’s share are to be sold at a 35% discount.

Three’s a charm

This is the airline’s third crack at a raising funds after two failed attempts last year due to bad timing.

Not unlike big-covid recapitalisation deals on this side of the Tasman, including Sydney Airport, Qantas Airways (ASX: QAN), Webjet (ASX: WEB) and Flight Centre (ASX: FLT) the rights issue is expected to at a near one-for-one ratio.

While Air NZ CEO Greg Foran has called a press conference for 6.30pm [Auckland time] tonight, it’s understood the deal will firstly target the airline’s shareholders, and then Kiwi retail investors and institutions globally.

The deal is expected to be sub-underwritten by Australian and offshore funds on Wednesday night.

Lifeline

At the half year Air NZ reported a statutory loss before tax of $376m, with dividends remaining on hold.

Today’s announced fund raising follows the lifeline thrown to the airline in March 2021, after the Kiwi government extended its loan facility by $600m to $1.5 bn, which also included loan terms being extended to September 2023. 

Adding to the rapid fall in the airline’s share price [of around $3] since January 2020 is the overhang endured by shareholders with the NZ government remaining a major shareholder in the national carrier.

The airline’s shares fell 0.78% to $1.28 before enter a trading halt today and are expected to resume trading tomorrow pending an announcement.

Better days ahead but don’t your breath

Despite NZ’s border reopening, Macquarie warns investors not to expect a quick capacity rebound for the Kiwi carrier.

While Macquarie suspects there could be a healthy time lag before bookings rebound, the broker does expect a profitable period for the airline among limited competition. 

Meantime, the broker retains a Underperform rating with the target price increasing to NZ$1.15 from NZ$1.10.

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Air NZ share price over three months.

Written By

Mark Story

Editor

Mark is an investigative financial journalist and editor who started his career working for Marathon Oil in London. He has a degree in politics/economics and a diploma in journalism. Mark has worked on 70-plus newspapers and financial publications across Australia, NZ, the US, and Asia including: The Australian Financial Review, Money Magazine, Australian Property Investor and Finance Asia. Mark is passionate about improving the financial literacy of all Australians through the highest quality content. Email Mark at [email protected].

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