Dubai: Etihad Airways will increase its equity stake in Virgin Australia to 21.2 per cent after just 25.3 per cent of new shares floated by the Australian carrier were taken up by eligible retail shareholders, according to Virgin Australia.
Virgin Australia Holdings announced on Thursday the completion of the retail component of its Retail Entitlement Offer with eligible retail shareholders purchasing 17.5 million Australian dollars (Dh57.69 million) worth of new shares in the airline’s A$351.5 million capital-raising exercise. Existing shareholders were able to purchase 5 new shares for every 14 ordinary shares they already owned in Virgin Australia.
The announcement was met with criticism by the Australian Shareholders Association (ASA) who said Virgin Australia “artificially restricted” small investors in a bid to lure the three foreign airlines, Etihad Airways, Air New Zealand, and Singapore Airlines, who already hold equity stakes.
Retail shareholders purchasing new shares were limited under the Retail Entitlement Offer. “The Virgin Australia board should have given priority to Australian retail investors rather than foreign government shareholders,” stated Ian Curry, ASA Chairman.
The balance of the 136.4 million shares remaining will now be issued to the underwriters and the sub-underwriter of the Retail Entitlement Offer, which is Air New Zealand, who agreed to sub-underwrite the Entitlement Offer of new shares, and Etihad Airways and Singapore Airlines, who have agreed to increase their equity stake through cash settled derivatives.
With the Retail Entitlement Offer fully underwritten, the three foreign airlines will increase their holdings in Virgin Australia through the purchase of the 136.4 million shares at cost of A$51 million.
Etihad Airways will lift its stake from 19.9 per cent to 21.2 per cent, Singapore Airlines from 19.8 per cent to 21.2 per cent, and Air New Zealand from 22.9 per cent to 24.5 per cent.
However, Etihad will have to wait for approval from the Australian Foreign Investment Review Board, as will Singapore Airlines, before it can take control of its news shares.
An Etihad Airways spokesperson told Gulf News in an emailed statement that the airline would evaluate any new opportunities that deliver significant benefits to both airlines, subject to further regulatory approval.
Air New Zealand already has the Australian Foreign Investment Review Board approval to take ownership of the new shares.
The increase in foreign ownership of Virgin Australia is likely to upset Qantas Chief Executive Officer Alan Joyce, who has slammed its competitor and called on the Australian federal government to level the playing field.
The Qantas Sales Act, federal legislation created in 1992, limits a single foreign airline to owning up to 25 per cent of Qantas, and total foreign airline ownership to 35 per cent.
Virgin Australia is not restricted because its domestic and international operations are separated.
Joyce previously asked the federal government to restrict further foreign investment in Virgin Australia or lift foreign ownership restrictions on Qantas.
The Senate asked the government to back Qantas with a capital injection, which was declined, in a bid to avoid a downgrading of its credit rating. The federal government decided against the capital injection and since then Qantas’ credit rating has been downgraded to BB+/B by Standard & Poor’s.
Qantas is facing stiff competition on its domestic network from Virgin Australia, who is increasing capacity across Australia and putting pressure on Qantas’ strategy to hold 65 per cent domestic market share.
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