Issuing airBaltic bonds is a last-minute debt solution, according to the economist

The national airline “airBaltic” issued 200 million euro bonds five years ago. In essence, it is a loan that should be repaid or refinanced already in July, for example by issuing new such promissory notes. There is no money for the first option, the second has not been successful so far. Even the government and the Saeima got involved, allowing the state itself to buy bonds of companies under its control.

“Good news” – this is how the Minister of Transport announced late on Tuesday that “airBaltic” has managed to issue new five-year 340 million euro bonds. It was quickly followed by proud announcements from the airline itself and other officials about how successfully and powerfully everything happened.

In addition to large institutional investors, 50 million euros of these bonds were purchased by the Latvian government. Another aspect drew the attention of many. The high interest rate of these bonds is 14.5% per year. Twice as high as the previous bonds. On Wednesday morning, the Prime Minister showed that she is not worried about this.

Evika Silinas

Prime Minister, “New Unity”

“Their balance sheet was very well tested. They counted on an even higher interest rate. It may come as a surprise to people, but we must remember that we live in a very high European Central Bank interest rate. This, of course, affects this as well. In any case, this is a very successful transaction.”

What does the 14.5% rate mean in practice? The revenue of the national airline last year was approximately 660 million euros. For bonds worth 340 million, the interest payments would be around 50 million per year, for five years, and at the end, the original value of the bonds must be repaid or refinanced again. If everything is repaid, it turns out that 340 million euros were borrowed, but about 600 million would be returned.

“airBaltic” itself does not hide at all – currently the media, politicians and other interested parties pay huge attention to the national airline. The particular company is one of the most discussed topics in society.

And interest abroad as well. The business newspaper “Bloomberg” has called these company securities “junk bonds” in professional jargon. Namely, a speculative, high-risk-high-return investment. Economist, rector of the University of Latvia Gundars Bērziņš has similar thoughts.

Gundars Berzins

economist, rector of the University of Latvia

“This was a last minute solution. This is clear, but it must be understood that there was no other way out either.”

The good news is that it was possible to refinance and the state does not have to invest everything.

Gundars Berzins

economist, rector of the University of Latvia

“The bad news – this high interest rate leads to the fact that it will be relatively difficult for the company to invest in development, because of the huge interest payment.”

The economist emphasizes that this can only be a short-term solution.

Taking into account how soon the bonds issued five years ago would have had to be repaid, the potential investors themselves must have realized that airBaltic, so to speak, has its back and the company cannot be very selective.

The airline explains that the market situation looked even worse during the previous refinancing attempt last year. Now the readiness of the state to get involved in this transaction has also helped, however, monetary policy, geopolitical conditions and the historically established financial position of “airBaltic” have led to an already high interest rate. All of this is calculated in the business plan.

Martin Gauss

chairman of the board of “airBaltic”.

“There’s a lot of noise here right now, I understand that. Many self-proclaimed experts now discuss capital market matters, although there have been no such examples in Latvia. I really “enjoy” reading these musings. You can see there is no knowledge of how these things work, and those who shout the loudest have the least knowledge.”

Gauss says that as the airline grows and for the expected share trading on the stock exchange, it is necessary to bring in additional capital, which would improve the financial position. After two years, there will be an opportunity to refinance this bond issue on more favorable terms, which would allow the company to further develop more rapidly.

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