Experts say airBaltic bonds interest rate 'high but appropriate'

The 14.5% rate on bonds issued by the national airline airBaltic is high, but it is appropriate for the risk and the health of the company, as stated by financial market experts assessing the price of airBaltic's €340 million loan, LSM and Latvian Radio reports.

Andrejs Martinovs, Chairman of the Board of INVL Pension Funds, told that the loan would cost the national airline around €45 million - the amount airBaltic will pay in interest, which is relatively high.

"This is currently the highest rate offered to investors on the European bond market this year," the expert said.

He said that the interest rate on airBaltic's bonds is surprising and comparable to the rate on "instant loans". But if the situation is extreme, the rate will always be quite high. Apparently, airBaltic has not been able to attract investors at a lower rate, "so it has had to borrow from usurers" - those willing to lend.

Martinovs pointed out that investors consider the airline a rather risky investment. The airline's overall situation is good, but it is not expected to improve. "Investors have injected money in the hope that the situation will improve. At the moment it looks like the "patient" will pull through, but there are no guarantees," the financial expert assessed.

He said that the risk for airBaltic lies in the airline's credit risk and its ability to repay the borrowed funds. "Investors who assessed these parameters saw higher risks and asked for a higher premium for the risk they were taking," Martinovs explained.

He added that the airline has so far failed to become a company that makes a stable profit to repay all its borrowings.

"It is always a question of whether to lend more, whether it will help, the company will start life again and life will become easier, or whether it will be the last loan that is possible," Martinovs said.

Also according to Bloomberg, airBaltic has to pay the highest amount on the European bond market to close a last-minute refinancing deal, even if the government backs it.

Investment banker Ģirts Rungainis, a member of Prudentia's Supervisory Board, said that so far the whole industry has been a loss-making one for both society and investors. In recent years, the air transport industry has been hit by both Covid-19 and the Russian invasion of Ukraine.

The investment banker had expected the rate to be even higher before this deal.

"This rate is high and reflects the high level of risk. In fact, AirBaltic and probably the Latvian state and the company's management have bought time. In Europe, we expect interest rates to start falling this year. airBaltic has therefore managed to do without public money to a large extent. I understand that the State will contribute only EUR 50 million. airBaltic has shown that they have state support. By playing this maneuver, they have convinced the market and bought time to refinance to lower rates within two years, given that rates will fall in Europe and the company's results improved," Rungainis said.

In a statement late Tuesday evening, airBaltic said it had issued EUR 340 million of 5.25-year covered bonds at an interest rate of 14.5%. Transport Minister Kaspars Briškens (Progressives) has already expressed his delight that the market demand for these bonds has more than doubled the target amount. Of the total amount of the bonds, €290 million were purchased by private investors and €50 million by the State. Demand exceeded supply, with final orders exceeding €840 million. 

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