Air New Zealand will take part in Virgin Australia's planned A$852 million (NZ$897 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 21 Australian cents apiece, a discount to the 29.5 cents 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 A$159 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 percent target stake in the airline, subject to a maximum investment of US$300 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 per cent to 28 Australian cents, while Air NZ shares were up 1.7 per cent to NZ$2.115.
Earlier this year Virgin Australia's cornerstone shareholders committed to providing A$425 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 A$268 million, or 33 cents 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 A$300 million by the end of 2019. It expects to face restructuring costs of between A$200 million and A$250 million and impairments of A$150 million to A$200 million through that period.