TAP - Air France, the EC and Positioning
All,
Please refer to our unchanged analysis here.
TAP’s proposed restructuring plan differs from Air France-KLM’s in that the new debt is a) bigger than last summer’s injection, b) bigger in relative terms than the French State’s injection of E1bn, c) is planned to be made in the form of new debt with the potential equitisation/subordination of last summer’s injection, d) starts from a level of state ownership of 72.5%, materially higher than France’s 14.3%, even if adding the Netherland’s 14% to that.
The European Commission today approved the French governments’ plan to support Air France-KLM with an additional E1bn in cash to be allocated via rights issue, while the previously injected E3bn of last summer will be converted from a loan into a convertible hybrid. The Netherlands are in a similar process with the EC, but are delayed due to Dutch elections in March. The French stake is to result in an increased French stake of just under 30% (no public offer), which would dilute the Dutch stake to 9.3% (which may have its own repercussions). Delta Airlines’ 8.8% stake will be diluted and China Eastern are planning to participate, but keep their stake at under 10%.
By contrast Portugal via Parpublica already holds 72.5% of TAP SGPS S.A., the issuer of a small E124m convertible bond, which holds 100% of Portugalia S.A. and importantly TAP S.A., the issuer of the E575m SUNs and borrower of the E1.2bn emergency loan provided last summer. The plan is to equitise that loan to hold 90% of TAP and inject a further E2.5bn, again as loan, into TAP - presumably secured.
If the French plan is any guidance the EC may ask Portugal to make the new E2.5bn TAP S.A. loan convertible and equitise the current E1.2bn loan. That would be only marginally less favourable to Portugal.
We note, however, that none of the EC requirements so far have asked for the equitisation of bonds or otherwise debt held by third party market participants (non-government debt). As per our analysis, we also do not see how Portugal would force the SUNs into a restructuring.
We are therefore taking a 3% of NAV position in the TAP 24 SUNs at 79.5 c/E with a view to benefiting from a positive resolution between Portugal, TAP and the EC later this month or next. We are highly confident that Portugal will make the required adaptations to recapitalise TAP, without attacking the SUNs. However, the position is halved size to reflect the binary scenarios of deal vs no deal.
Wolfgang
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E: wfelix@sarria.co.uk
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