Well, bad luck Qantas (QAN), the failure of the $350 million issue by Virgin Australia (VAH) to get strong support from small shareholders has all but condemned Qantas to look for ways of raising new capital it needs other than tapping its huge base of small shareholders.
The details of the first part of Virgin’s fund raising, released yesterday, saw Air New Zealand, Singapore Airlines and Etihad Airways lifting their stakes in Virgin, only 25.3% of retail shareholders took up their entitlements to the issue.
That’s stunning lack of support and down to a number of factors – most of which involve a deliberate attempt by Virgin managers and advisors to discriminate against small shareholders.
Well, perhaps it was the non-entitlement nature of the issue which didn’t allow shareholders who didn’t want to take up their shares in the issue, sell the rights in the market. Or perhaps it was just all the bad news about airlines generally, especially Qantas.
The bad publicity about Qantas would have been front page in the closing days of the Virgin fund raising.
And then there was the 5% discount of the issue price to the last sale for Virgin shares. And then there’s also the slow sell off in the local market this month, especially yesterday, which has seen the market down around 5% in the past 10 days of trading.
VAH Vs QAN YTD – Virgin raises its money, but there’s no help in that for struggling Qantas
But perhaps it was the very restrictive requirement that retail shareholders were limited to applying for new shares in excess of 40% of their entitlements. That was discrimination.
The three government controlled foreign carriers had sub-underwritten the Virgin rights issue and with more than 98% of institutional investors taking up their rights, the airlines lifted their combined stake at the expense of the retail shares not taken up. The estimated cost of those shares was around $51 million to the three airlines.
Before the retail offering was completed, Air New Zealand had 23% of Virgin followed, Etihad had 20% and Singapore Airlines had 19.9%. Those stakes have now risen to 24.5% for Air NZ, and 21.2% for both Singapore and Etihad. That’s a total stake of 67.9%.
Air NZ already has Foreign Investment Review Board approval for its higher stake but Eithad and Singapore will need clearance to take control of the shares that will boost their stakes beyond 19.9%.
The shares issued in the retail offering will be issued on December 17 and start trading on December 18. Virgin conducted the raising at 38¢ a share, which compares with its closing price of 38c.
Qantas shares slipped 2% to 97c. it’s very hard to get a big issue away with the shares under a dollar, without support from major shareholders, as Virgin did.
Qantas doesn’t have big friends like Virgin but has some big institutions, and a lot more retail shareholders.
Shareholders haven’t had a dividend, and have watched the board and management still get paid very well, despite the problems of the past three years.
That would also make many retail shareholders reluctant to support an issue done by the current board and management.
A reworked board (especially chairman) and senior management might have more chance of getting retail shareholders to give Qantas another chance.
