In the next two years, the state will have to write off several hundred million euros invested in “airBaltic” as lost money

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About AirBaltic (AirB). Many have not noticed one important nuance compared to the 200 million euro bonds 5 years ago (interest rate 6.75%): then the bonds were NON-secured (unsecured), which means – no pledge or guarantee, but the full risk of the moneylender. Yesterday’s bonds are secured (secured), which means some kind of countermeasure or “safety cushion” for moneylenders that AirB in case of difficulties in repaying the money, it will be compensated by a pledge or a state guarantee.

Looks like that AirB the issue of bonds, even with the very “salty” interest rate of 14.5%, could happen at all thanks to the state guarantee, which the government probably decided on in a secret meeting. One is the government’s “purchase” in the bond issue announced a week ago (up to EUR 136 million), which gives more security to private bond buyers, but presumably there is another guarantee for investors from the Ministry of Finance, if something bad happens.

Most certainly, investors needed assurance that the European Commission would not take action against them AirB (similarly to Hungary Malev and Cyprus Cyprus Airways) about the repeated state support for an airline whose business sustainability model private money doesn’t really believe in. I think that V. Dombrovskis came here to help, and he will leave a good name DG COMP colleague Danias M. Vestager for this bond issue and in general for AirB “exit strategy” with the IPO.

Anyway, the repayment of the 200 million euro bonds “at the last moment” (the deadline is the end of July) was necessary to AirB would not apply default and to be able to move to the next (final?) stage in the long-term AirB in the saga – IPO or more precisely the sale of state ownership to private capital. I think IPO obstacle AirB it will be much easier for the management, because it is not strictly defined anywhere how much the shares should be sold for in the IPO in order to receive enough money from the state investment AirB for repayment.

Simply put, in recent years, the state AirB has invested well over 500 million euros, but if as a result of the IPO the state will receive, say, 200 million euros for the shares, then no sanctions are foreseen: as they say, the geopolitical situation, low leverage and everything else that prevented the recovery of all the state invested. I think that in the next two years the state will have to write off a few hundred million as lost money.

I don’t know if it was wise to postpone the bond issue until the last, because investors will always learn to take the maximum from the borrower who is under a lot of pressure. Similarly, Latvia met with Citadele banks sale: dragged to the last, left only one bidder and in the end gave the bank “for a sandwich” to an American venture capital fund, which basically lives on such ~1000% profit deals. 14.5% interest rateAirB will have to be able to “serve” with a much higher profit and generally reduces AirB economic value.