Experts: the bond rate of “airBaltic” can be considered favorable in the current situation

Investment banker and “Prudentia” partner ďirts Rungainis told LETA agency that the bond rate of “airBaltic” is relatively high, however, taking into account the airline’s and geopolitical situation, it should be considered advantageous. Rungainis expected that the interest rate could have been even higher.

“The bond issue shows that investors are ready to invest and do not consider that the company has a risk of insolvency. At the same time, this rate indicates that the risks are high – both the company’s own risks, the geopolitical risks of the region, and the situation of the tourism industry in the region,” said Rungainis.

According to him, the bond rate could have been even higher, but the state’s involvement in their purchase has helped to reduce the rate. According to Rungaiņš, “airBaltic” has not issued five-year bonds, but has bought time to expect a decrease in interest rates in the market.

“The company’s results are good, recovery is underway after the crisis caused by Covid-19. It is likely that airBaltic will manage to refinance these bonds at a lower rate within two years,” said Rungainis.

He reminded that a year ago it was said that “airBaltic” would not be able to refinance the existing bonds, but the company has succeeded in doing so. State involvement is also minimal, Rungainis emphasized.

When asked if there was a possibility to issue bonds with a lower interest rate, Rungainis explained that they are still high-risk bonds, because aviation is a “heavy” industry, and with the exception of some market leaders, the situation is difficult for other airlines.

Rungainis added that the expressed interest in “airBaltic” securities in the amount of more than 800 million euros only shows that such a number of investors wanted to buy bonds exactly at such a rate. If the rate had been lower, there might have been less investor interest.

On the other hand, “SEB banka” economist Dainis Gašpuitis told LETA agency that attracting financing to “airBaltic” was critically necessary, without wide maneuvering possibilities. If there had been confidence in the high demand, perhaps one could have hoped for a slightly lower rate, but not much, according to Gašpuitis.

“Due to the increased risks of both the industry and the company, including geopolitical risks, the cost of borrowing would be high. Therefore, it was most likely decided to offer a rate that would create an appropriate response from investors. The primary goal was to refinance liabilities and continue operations, which was achieved,” emphasized Gašpuitis.

The economist emphasized that currently the industry is recovering and the chances of further improving the company’s financial indicators are increasing. In addition, the strategic influence of “airBaltic” on the Latvian economy should be taken into account, which is why the continuation of the company’s operation should be evaluated as a positive outcome.

The next step is to continue working on the company’s growth and capital attraction, Gašpuitis added.

Bank “Citadele” economist Mārtiņš Āboliņš explained to LETA agency that it is certainly positive that “airBaltic” has managed to successfully issue bonds and refinance the previous loan. Taking into account the geopolitical situation, the high interest rates and the failed bond issue in the fall, as well as the approaching repayment deadline of the previous loan, there was certainly a risk that “airBaltic” might fail to attract the interest of investors.

“If this issue fails, the company would find itself in a very difficult situation, because it did not have the financial opportunity to repay the previous bonds. This is probably also one of the reasons why the government decided to participate in the bond issue,” explained Āboliņš.

At the same time, the economist admitted that the bad news is, of course, that the financing costs are very high, and this will create a significant financial burden for “airBaltic”. The great interest of investors suggests to Āboliņš that it was possible to borrow at a slightly lower interest rate, however, it is very difficult to assess the interest and willingness of investors to buy bonds before their issuance.

In this case, the risk that “airBaltic” might slightly overpay for borrowing should be seen against the risk that the bond issue could fail, which would make the company’s future very uncertain. Āboliņš emphasized that the urgent need for financing has been solved at the moment, but expensive financing may be a challenge in the future, including the listing of the company’s shares on the stock exchange.

It has already been reported that the Latvian national airline “airBaltic” has issued bonds worth 340 million euros, Minister of Transport Kaspars Briškens (P) announced on Twitter on Tuesday evening.

The airline has issued 5.25-year secured bonds in the amount of 340 million euros with an interest rate of 14.50%.

Brišken stated that the market demand for these securities more than doubled the target amount.

The Minister of Transport emphasized that issuing bonds will allow “airBaltic” to grow, namely by expanding Riga’s connectivity, increasing the fleet and entering new markets. “The next steps are attracting a strategic investor and listing the company’s shares on the Riga Stock Exchange,” added Briškens.

“Of the total amount of bonds, 290 million euros were bought by private investors. The state bought 50 million euros. The demand for securities exceeded the supply, the value of the final orders exceeded 840 million euros,” Brišken tweeted.

“airBaltic” president and CEO Martins Gauss stated that “with this successful bond issue, “airBaltic” has strengthened its position in the Baltic region by accessing the international debt capital markets using Eurobond offers”.

“The bond issue will be used to refinance our previously issued EUR 200 million bonds, confirming investors’ confidence in airBaltic’s qualitatively developed and convincing strategy. To further improve the company’s financial stability, this refinancing will significantly increase our liquidity, allowing us to continue investing in fleet expansion and modernization. This day marks a historic event for our airline”, stresses Gauss.

Settlement of the bonds is expected to take place on May 14, 2024, and they are planned to be listed on the “Euronext Dublin” stock exchange, which is one of the world’s most recognized bond listing sites, according to the airline.

On the other hand, Prime Minister Evika Siliņa (JV) stated on Twitter that the airline “successfully implemented the largest corporate bond issue in the history of Latvia”.

The audited turnover of “airBaltic” last year was 664.289 million euros, which is 33.2% more than in 2022, and the company also made a profit of 33.852 million euros, in contrast to losses a year earlier.

The Latvian state owns 97.97% of “airBaltic” shares, while “Aircraft Leasing 1” owned by financial investor, Danish businessman Lars Tūsen – 2.03%.