British Airways owner International Airlines Group (IAG) (IAG) has placed new shares to prop up the group’s shrinking balance sheet. The company expects to raise €2.75 billion through a heavily discounted capital increase.
IAG takes a strategy of new shares placement and expects to issue a €2.97 billion new shares at a price of €0.92 each. However, according to current Nasdaq statistics, the share price fell by 36% as a discount to the previous price on September 9, 2020.
The largest shareholder of the group, Qatar Airways group has already committed to support the proposed capital raising.
“A capital increase of up to €2.75 billion will enhance the group’s resilience, balance sheet and liquidity position,” Willie Walsh, the CEO of IAG, announced in the interim management statement. “This will best position IAG to continue executing its strategic objectives and capitalise on its existing market leading position and future growth and consolidation opportunities,” added he.
Earlier in July 2020, British Airways owner presented a revision of terms of share subscription process for the fully underwritten capital increase.For each existing share of IAG, its holder is entitled to one subscription right, according to the new terms Also, shareholders can subscribe to three new shares for every two subscription rights they own.
As all IAG airlines have made substantial losses in 2020, Walsh said that the group expected that it would take until at least 2023 for passenger demand to recover to 2019 level. The group reported a record operating loss of €1,365 million compared to an operating profit of €960 million in 2019, the financial results of 2020 showed.
The total operating losses of the IAG were deepened by the early retirement of British Airways’ Boeing 747s and Iberia’s Airbus A340s that came to a loss of €2,177 million.
However, IAG continues to take actions to strengthen its balance sheet and liquidity position – at the end of June the group’s liquidity stood at €8.1 billion.
IAG said the capital increase would reduce debt on its balance sheet and help it withstand a prolonged downturn in travel.