Australia’s Regional Express is in “advanced exclusive negotiations” with PAG Asia Capital for up to A$150 million ($110 million) funding to support its plans for commencing domestic operations.

Rex describes PAG as a leading Asia-Pacific-focused private investment firm and the parties inked a long-form term sheet on 21 September evening, Rex said today in a disclosure to the Australian Securities Exchange.

Regional Express Saab 340B Rex

Source: Wikimedia Commons

A Saab 340B operated by Regional Express

The A$150 million funding is “to be used exclusively to support the launch of its domestic major city jet operations scheduled to commence on 1 March 2021”. Subject to conditions and approvals, the transaction is targeted to complete by the end of this year.

The funding is proposed to comprise first-ranking senior secured convertible notes, convertible at A$1.50 per share, subject to certain adjustments.

An initial A$50 million tranche will be drawn upon the completion of the transaction. The balance funding will be drawn over the following three years.

Rex says that based on its current issued share capital, the initial A$50 million tranche if fully converted to shares would give PAG approximately 23% of its total issued shares. If the full A$150 million is drawn down and fully converted, PAG would hold approximately 48% of Rex’s expanded share capital.

Upon completion of the transaction, targeted for end-2020, PAG will be entitled to nominate two directors to Rex’s board.

The funding is subject to the completion of due diligence by PAG, as well as the parties’ agreement and execution of long-form documentation.

Among other customary conditions, Rex will also have to seek shareholder approval at its upcoming annual general meeting, tentatively scheduled for early December. Furthermore, the transaction is subject to other regulatory approvals, such as that of Australia’s Foreign Investment Review Board.

PAG’s website indicates that the alternative investment management group, which has $40 billion in capital under management, and focuses on private equity, real estate, absolute returns, is based in Hong Kong.

The terms of funding will also be reviewed by an independent expert, says Rex.

“With PAG’s support, I have every reason to believe that Rex can successfully launch its domestic major city jet operations,” Rex’s executive chairman, Lim Kim Hai says.

He adds: “As a well-established carrier with an impeccable track record, I am confident that Rex will deliver to Australians an alternative major city domestic service that is safe, reliable and affordable. Rex’s affordable fares will support Australia’s economic rebuild and recovery efforts.”