The state of Finland and the company’s other major owners support the subscription rights issue, and it is also guaranteed by the banks.
Carrier Finnair says it is planning a share issue of a maximum of EUR 600 million during the fourth quarter.
The purpose of the rights issue aimed at current shareholders is to strengthen Finnair’s financial position. The share issue is large compared to the company’s market value, which was approximately EUR 735 million when the Helsinki Stock Exchange closed on Thursday.
Finnair justified its decision at a press conference starting at 11 o’clock. HS showed the event live.
The implementation of the share issue requires the approval of Finnair’s extraordinary general meeting to be held at the end of October.
“The gross assets from the share issue will be used to strengthen Finnair’s balance sheet and financial position, so that the company can better manage its remaining financial debts, support the implementation of its strategy aimed at sustainable profitable growth and ensure its ability to make investments in the future,” Finnair says in its press release.
Finnair says that it will use the funds from the share issue to repay a 400 million euro capital loan and to pay the accrued interest on it. The company already paid back a 200 million euro hybrid loan in September.
“The rights issue is a consistent next step, and thanks to it we will return to a more normal, sustainable capital structure. This supports the implementation of our strategy in the future and gives us the opportunity to continue improving shareholder value, also in the form of profit distribution”, says Finnair’s chairman of the board Sanna Suvanto-Harsaae in the bulletin.
On Friday morning, Finnair’s share opened to a strong decline on the Helsinki Stock Exchange. The stock had sunk 20.1 percent to 0.42 euros after five minutes of trading, as investors fear the offering will dilute the value of their holdings.
As the day progressed, the plunge only got steeper and at 12:45 the stock was down almost 24 percent.
Finnair is also updating its long-term financial goals. The company is now working, among other things, to restore the company’s ability to distribute funds starting in 2025. The goal is based on next year’s result.
Dividend payment in addition, the strengthening balance sheet enables Finnair to make investments. However, the company has no need to buy new aircraft in the near future. Finnair currently has 79 planes.
“The optimization of the fleet has been completed after the closure of Russian airspace. With this fleet, Finnair will be able to grow with the market in the next few years,” said Finnair’s CEO Topi Manner at a news conference on Friday.
However, according to Manner, who will take over as the CEO of telecom operator Elisa in the spring, Finnair still wants to keep “the option to increase the weight of Asian flights in Finnair’s network if one day there is peace in Ukraine and Russian airspace opens up”.
In the future, Finnair may also need to invest due to its emission targets.
“In terms of sustainability goals, it is key to invest in renewable fuels and new aircraft technology that reduces fuel consumption in the longer term. Because of this, investment ability is an important issue for Finnair in the future,” said Manner.
Finnair the largest shareholder, the Finnish government, supports Finnair’s proposal and plans to fully subscribe to new shares in the issue. The state expects to pay for the subscription of the shares by offsetting the entire subscription price with a corresponding amount of capital loan capital. The state owns approximately 55.8 percent of Finnair.
The minister responsible for owner guidance Anders Adlercreutz (r) says that the planned arrangement is financially justified for the state as a shareholder and enables the company’s balance sheet structure to be clarified.
In addition, Adlercreutz believes that the arrangement supports Finnair’s long-term growth and strengthens its ability to make the investments it needs.
“As a responsible and long-term owner, the state will do its part to ensure that Finnair’s business conditions will also be maintained in the future,” says Adlercreutz in a press release from the State Council’s office.
Also the employment pension company Varma, Elo and Ilmarinen have committed to vote in favor of the proposal at the extraordinary general meeting and to subscribe for shares in the offering.
The occupational pension companies own about 3.4 percent of Finnair.
A subscription guarantee will be issued for the rest of the share issue. The main organizers and underwriters of the share issue are Deutsche Bank and Nordea.
Finnair’s comparable operating result became positive in the third quarter of a year ago. In June of this year, the company issued a positive earnings warning, according to which it will reach its profitability target 12-18 months in advance.
Stock research company Inderes estimates that correcting the balance sheet with the subscription rights issue is a “much-awaited final show” for Finnair’s rebuilding process and that the size of the issue is sufficient.
“In our opinion, Finnair’s balance sheet, which has been practically entirely composed of interest-bearing instruments lately, has been unsustainable in the longer term,” writes Inderes’ chief analyst Antti Viljakainen in his comment.
The asset management company Evli also assessed in its morning review that the announcement of the share issue did not come as a big surprise, because strengthening the “crisis-ravaged” balance sheet to the desired level would have taken a “really long time” just because of its own profit ability.
Raising capital through a subscription rights issue dilutes the holdings of Finnair’s current shareholders.
“Typically, subscription rights issues, and especially 100% guaranteed subscription rights issues, are made at a significant discount compared to the stock market price”, Viljakainen estimates.
For example, in the subscription rights issue carried out by Finnair in the spring of 2020, the calculated discount was more than 40 percent. There are no calculations on the dilution effect of the current offer, because its more precise terms are not yet known.
Finnair The interest costs of the 400 million euro capital loan are rising quite quickly. The loan margin is 3.5 percent and the current reference interest rate is 4.102 percent.
The loan margin is about to rise to five percent in March next year, and the margin will also be increased after 2024. The reference interest rate is revised annually in August.
The loan had accrued 32.8 million euros in interest by the end of the second quarter.
The financing costs of the hybrid loan repaid in September were about to rise to around 30 million euros next year.