'airBaltic' has not long left to repay buyers of bonds

The state-owned airline airBaltic has half a year left to find 200 million euros to repay buyers of bonds issued in 2019. The head of airBaltic, Martin Gauss, said in an interview that the company will be able to raise money, the state as a shareholder may have to get involved, Latvian Television's De Facto reported on February 12.

The objectives of airBaltic were presented at the capital market forum of the Bank of Latvia last week by Vitolds Jakovļevs, the board member responsible for finance. He said the company had been considering stock quotations on the stock exchange to raise money since 2018. Since airBaltic did not manage to attract strategic investors, there is no other possibility to acquire capital.

Currently, airBaltic's equity is negative – EUR 71 million. Jakovļevs stressed that this means higher interest rates on borrowing, which is disrupting competition with other airlines.

The company has managed to grow turnover rapidly in recent years. There are no official results yet, but airBaltic reported it could be 668 million euros last year. Last year is also expected to be the first since 2018 with some profit.

Financial weakness is evidenced not only by negative equity but also by debts. The most recent report for the nine months of 2023 indicates that short-term liabilities exceed current assets by EUR 352 million. The main reason is that on July 30, airBaltic has to repay a total of EUR 200 million to owners of bonds issued 5 years ago. The company doesn't have that money right now.

Looking for lenders but not ruling out state aid

The company's latest financial report lists three options for paying back 200 million: borrowing from private lenders, issuing new bonds, or asking for help from the state.

“All three of these options are possible. We cannot make a statement today about which of the options will come true. But one of these will happen, preferably the best for the company and shareholders,” said Martin Gauss, chairman of the company's board of directors.

Gauss refused to comment on the details of the bond refinancing, saying it was unusual for airBaltic to comment at all.

Asked about the possibility that state money would be needed, however, Gauss expressed confidence that the company would be able to borrow itself.

“Today we do not intend to turn to the Latvian government because we intend to refinance bonds with private lender money or capital market financing. We do not want to demand government support for this purpose. We want to find a different solution and I am sure we will have a different solution. But we also have to say at the same time that the [state's] shareholder role could be used here,“ Gauss said.

He acknowledged that the Baltic region as a whole seems risky to international investors because of Russia's war against Ukraine.

Double-digit interest rate for borrowing

Gauss said that airBaltic's plans take into account that it will now be significantly more expensive to borrow than it was five years ago when the company issued bonds at a 6.75% rate. airBaltic hoped to refinance the bonds as early as autumn but canceled the plan.

Transport Minister Kaspars Briškens (Progressives) said of it: “The price of money was really high. The money was available, but at that point an inadequate price. There are currently no talks of State aid as there are a whole range of options to refinance these securities on the market.”

The situation could only be a little better now, according to Andrejs Martinovs, head of investment services provider INVL Family Office.

According to him, there will be no bank financing for the return of debt unless the state provides some guarantee. On the other hand, in the bond market, although the situation is better than in autumn, it will be expensive to borrow – twice as expensive as in 2019, or even more.

“I think it's definitely about double-digit yields right now. [..]. I think that's one of the reasons this previous attempt has failed. The funding price is very high,“ Martinovs said.

Stock exchange plans

It is planned that airBaltic could start on the stock exchange at the end of the year. Andrejs Martinovs is wary of the perspective. He says airBaltic's financial indicators now resemble a startup that is still trying to ensure enough financial flow, not a company with a long history.

“We, the capital market industry, are looking with high expectations at the listing of public companies on the stock exchange. Consequently, I would not want us to take the risk right now and try to attract the attention of investors to airBaltic and we do not succeed. I wouldn't want to take a chance. [...] For now, I think the company is not ready,“ Martinovs said.

Gauss, head of airBaltic, emphasized that there is not much information about the offer of public shares, because important decisions are still being made, including how much money to raise and when to go to the stock exchange. For now, work is underway with consultants.

Gauss said it must be proven that airBaltic is not a Baltic-wide company, but an international company, for which the closing of the eastern market is not such a blow.

“airBaltic will announce the best annual results in the company's history in March. We believe investors will appreciate this and say, here's an airline that can grow even with the war next door. This is airBaltic's story. It's a story we'll be able to prove with numbers. We also have a plan for the future, we have ordered new planes. It's a story we have to sell,” Gauss said.

Lithuania and Estonia have shown potential interest in acquiring airBaltic shares.

Transport Minister Kaspars Briškens said there had been informal discussions with Baltic counterparts about this: “This shows, of course, not only that neighbors appreciate airBaltic's operational results, but also airBaltic's role as a factor for Baltic connectivity and strengthening competition. […] They have every opportunity to participate in this IPO process. In any event, these positive signals from our neighbors also help us move towards this first-time stock listing.”

The head of airBaltic Gauss also confirmed that he has met the responsible ministers of Lithuania and Estonia for the past few weeks. airBaltic's role in the region, Lithuania's and Estonia's interests in aviation, as well as airBaltic's plans on the stock exchange, have been discussed.

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