State offers $885M to rescue Air NZ

By Phil Boeyen, ShareChat Business News Editor

Thursday 4th October 2001

New Zealand taxpayers will own up to 83% of Air New Zealand (NZSE: AIRVA) under new recapitalisation plans.

The long-awaited plans, revealed early Thursday, include investment of up to $585 million in taxpayers' funds for new ordinary shares in the airline and $300 million worth of convertible preference shares.

Neither of the airline's major shareholders, Singapore Airlines or Brierley Investments (NZSE: BRY), will be coughing up any cash to keep the business flying. An earlier rescue plan would have seen the two companies put in $150 million each.

The first phase of the restructuring is a $300 million loan to the airline so it can pay Ansett $150 million as settlement of potential claims by the group. The rest of the loan will be used as working capital.

Air New Zealand will also relinquish around $160 million in claims against Ansett for money it is owed.

The second phase of the recapitalisation programme, expected to be completed between December 2001 and January 2002, calls for Air NZ to repay the $300 million loan with interest by way of new convertible preference shares.

The Crown will then stump up with as much as $585 million for new ordinary shares in the company, with the A and B class shares reclassified into one class.

The convertible preference shares will be issued at 24 cents per share or any lower price at which the ordinary shares are to be issued. They will carry a fixed cumulative dividend of 5% per annum and will have full voting rights.

The shares will convert to ordinary shares in 2005 or earlier at the Crown's request and will not be listed before they are converted.

The issue price for ordinary shares will be determined after due diligence, as representing fair value and could be higher or lower than 24 cents.

Air NZ acting chairman, Jim Farmer, says the precise amount the Crown will invest in ordinary shares will be decided after determining the amount required to put the airline on a sound financial footing with a prudent equity base.

"The board of Air New Zealand must also conclude that the issue prices of the convertible preference shares and ordinary shares are fair and reasonable to the company and its existing shareholders."

Singapore Airlines and Brierley Investments are supporting the deal and have agreed to hold onto their shares until at least the end of January next year when the recapitalisation process is expected to have been completed.

"If the full amount of $885 million is invested by the Crown at 24 cents per share it will hold approximately 83% of the enlarged share capital. If the issue price is higher the percentage will be correspondingly lower," Mr Farmer says.

Under settlement with Ansett's voluntary administrators the airline says the company and its directors will be released from all further claims.

"The company's board of directors and its advisers have reviewed other potential exposures relating to Ansett and any further liability for the company is considered to be unlikely," says Dr Farmer.

Air NZ will however keep a preferred partnership arrangement with its former Australian subsidiary and will provide intellectual property to help the voluntary administrators carry on the Ansett business.

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