Air NZ to join in discounted Virgin Australia rights offer

Air New Zealand [NZX: AIR] will take part in Virgin Australia's planned $A852 million rights issue, even though the national carrier plans to offload the bulk of its stake to China's Nanshan Group.

Melbourne-based Virgin Australia today said it will sell shares at 21Ac  apiece, a discount to the 29.5Ac trading price before the ASX opened, to shore up its balance sheet in a one-for-one non-renounceable pro rata entitlement. Australia's second-biggest airline had already announced plans to raise $A159 million selling shares to China's HNA Group and today's deal has the backing of its cornerstone airline shareholders.

Air New Zealand, Singapore Airlines, HNA, Virgin Group, and Nanshan have committed to take up the offer. If Air NZ hasn't completed the sale of its Virgin stake to Nanshan, it has agreed to pick up Nanshan's share of the entitlement offer. Singapore, HNA and Virgin Group will underwrite entitlements not taken up by other shareholders, and HNA can top up its holding to ensure it reaches its 19.99% target stake in the airline, subject to a maximum investment of $US300 million.

While Etihad Airways hasn't committed to the offer, it has told Virgin Australia it will approve the HNA top-up placement.

Virgin Australia shares fell 5.1% to 28Ac, while Air NZ shares were up 1.7% to $2.115.

Earlier this year Virgin Australia's cornerstone shareholders committed to providing $A425 million of one-year funding to allow the airline to review its mix of debt and equity and consider operational initiatives to boost Virgin's cashflow and profitability. Air NZ later said it was reviewing its stake and last month announced plans to sell 19.98% to Nanshan for $A268 million, or 33Ac a share.

Virgin Australia also said it plans to cut its fleet size over the next three years with a view to saving an annual $A300 million by the end of 2019. It expects to face restructuring costs of between $A200 million and A$A250 million and impairments of $A150 million to $A200 million through that period.

(BusinessDesk)