Qantas Group will raise up to A$1.9 billion ($1.3 billion) in equity capital to strengthen its balance sheet, as part of a three-year plan to accelerate its recovery from the Covid-19 crisis.
This encompasses A$1.36 billion from a fully underwritten institutional placement, and up to A$500 million from a non-underwritten share purchase plan extended to eligible existing shareholders in Australia and New Zealand.
“Proceeds from the equity raising will be used to accelerate the group’s recovery, strengthen its balance sheet and position it to capitalise on opportunities aligned with its strategy,” the company said in a statement on 25 June.
The institutional placement is being conducted today and Qantas is offering shares to institutional investors, each at a placement price of A$3.65. This represents a 12.9% discount to the last traded price of A$4.19 on 24 June.
Around 372.7 million new fully paid ordinary shares will be issued under the placement and represents 25% of the company’s existing shares issued, which Qantas says has decreased by more than a third in recent years through share buybacks.
On 31 March, the Australian Securities Exchange (ASX) announced temporary capital raising relief measures to accommodate the need for listed entities to raise capital due to the effects of the Covid-19 outbreak, and adjusted the limits on relevant capital raising announced on or after 23 April from 15% to 25%.
This means Qantas does not need to seek shareholder approval for the placement under ASX’s class waiver decision on temporary extra placement capacity, dated 23 April.
For the institutional placement, Qantas will allocate eligible existing institutional shareholders their full entitlement on a best endeavours basis. It says that remaining shares will be prioritised to existing shareholders, and potential new shareholders will be evaluated for their likelihood of long-term support for the group, among other factors.
Under the share purchase plan, which Qantas’ board has decided to cap at A$500 million, the issue price will be the lesser of the A$3.65 placement price offered to institutional investors, and a 2.5% discount to the five-day volume-weighted average price of Qantas shares up to and including 22 July, the closing date of the share purchase plan.
Each eligible shareholder can apply for up to A$30,000 of new fully paid ordinary shares on a gross basis.
The company says, ”Qantas considers that the share purchase plan will cater for the vast majority of its non-institutional shareholders, enabling them to participate and potentially increase their relative percentage holdings in Qantas.”
After Qantas completes the underwritten institutional placement, it expects to have A$4.6 billion in available liquidity, comprising of A$3.6 billion cash and A$1 billion of undrawn facilities. This does not include proceeds from the share purchase plan.
As at 31 May, the company’s pro forma net debt is expected to be A$4.7 billion with no major debt maturities until June 2021, and there are no financial covenants on its debt.
The group will also revoke the payment of its interim dividend, which has been deferred since 19 March, allowing it to conserve A$201 million of cash.
“Decisions on future dividends will continue to be made in line with the group’s financial framework,” it says.