European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

International Consolidated Airlines Group / Event-Driven

International Consolidated Airlines Group

<a href="https://www.smartkarma.com/entities/international-consolidated-airlines-group-s-a" target="_blank" data-smartkarma-citation="entities:21984:1" rel="noopener">International Consolidated Airlines Group (IAG LN)</a> is conducting a fully underwritten EUR 2,741 mn rights issue.
<ul>
<li>vs. EUR 4,000 mn market cap upon announcement.</li>
<li>It makes sense from both strategic and solvency standpoints. The issue here is the cashburn rate. I am assuming (and crossing my fingers) that the business plan is sound.</li>
<li>There are arbitrage opportunities (although not limitless borrowing available). The rights will trade up to 17:30 on 25 September.</li>
</ul>
The share price of AIG has dropped below the point where many market participants expected, compounded by Covid rebound fears, but there is a bull case to be made:
<ul>
<li>IAG's shares have been greatly affected by the Covid pandemic and so far this year have fallen by c. 82%, so at current prices it may offer attractiveness. The main catalyst would be positive news on the health front, vaccines.</li>
<li>The operation will bolster the balance sheet and guarantee viability throughout the pandemic.</li>
<li>Expected sharp recovery in both 2021 and 2022 (see financial projections), although the airline does not forecast a full recovery until 2023 in its business plan (and analysts and ratings agencies do not expect it to happen until at least 2024).</li>
</ul>
But S&amp;P maintains its BB (negative outlook) rating and Moody's has just downgraded IAG one notch to Ba2.
This is akin to a placing by market volume.
<ul>
<li>I am assuming that many retail shareholders will not take their rights, and the underwriters (and hedge funds) may be covering their short positions after the end of the rights trading period through to the beginning of trading of the new shares. On top of that, there may be a wave of selling from 7 October.</li>
</ul>

International Consolidated Airlines Group (IAG LN) is conducting a fully underwritten EUR 2,741 mn rights issue.

vs. EUR 4,000 mn market cap upon announcement.
It makes sense from both strategic and solvency standpoints. The issue here is the cashburn rate. I am assuming (and crossing my fingers) that the business plan is sound.
There are arbitrage opportunities (although not limitless borrowing available). The rights will trade up to 17:30 on 25 September.

The share price of AIG has dropped below the point where many market participants expected, compounded by Covid rebound fears, but there is a bull case to be made:

IAG's shares have been greatly affected by the Covid pandemic and so far this year have fallen by c. 82%, so at current prices it may offer attractiveness. The main catalyst would be positive news on the health front, vaccines.
The operation will bolster the balance sheet and guarantee viability throughout the pandemic.
Expected sharp recovery in both 2021 and 2022 (see financial projections), although the airline does not forecast a full recovery until 2023 in its business plan (and analysts and ratings agencies do not expect it to happen until at least 2024).

But S&amp;P maintains its BB (negative outlook) rating and Moody's has just downgraded IAG one notch to Ba2.
This is akin to a placing by market volume.

I am assuming that many retail shareholders will not take their rights, and the underwriters (and hedge funds) may be covering their short positions after the end of the rights trading period through to the beginning of trading of the new shares. On top of that, there may be a wave of selling from 7 October.


Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Last Week in Event SPACE: Vedanta, Cardinal Res., Japan Retail Fund, HSBC, Opticomm, Tiffany/LVMH

IAG launched the rights issue announced on 31 July and approved at the AGM on 8 September.
<ul>
<li>EUR 2,741 mn (GBP 2,491 mn), c. 63% of its current market capitalisation.</li>
</ul>
The funds will be used to strengthen the balance sheet and reduce debt (increasing for solvency). This approach rules out state aid, as has happened with Lufthansa or KLM-AirFrance. Qatar Airways (25.1% holding), has irrevocably undertaken to subscribe for its pro-rata entitlement.
The right issue would be expected to be completed by the end of September.
This rights issue will have a positive impact in the cost of debt for IAG, allowing 2020 losses to be shared among a larger number of shares; and be highly dilutive in 2021.
Upon announcement, the discount to TERP was 35.86%. Discount and dilution (60%) are higher than what was expected by the market.
Vs. peers, IAG is hit by the higher dependency of profits on premium long-haul traffic, especially the North Atlantic corridor, where some analysts estimate that IAG obtains almost half of its profits.
On today's session, there has been high volatility in the share price with a day high/low of 207.7p/190.7p, and closed at 200.0p vs a prior closing of 200p, with roughly GBP 30 mn traded in London; similar story in Madrid, a day range of EUR 2.1-2.28, with roughly EUR 23 mn traded there.
The theoretical value of the subscription rights is EUR 0.7716 (according to my calculations), therefore IAG should trade around EUR 1.43 ex-rights. The low subscription price should ensure the success of the rights issue, but high volatility is to be expected. The rights will start trading on 14 September and I will update on any further developments.

IAG launched the rights issue announced on 31 July and approved at the AGM on 8 September.

EUR 2,741 mn (GBP 2,491 mn), c. 63% of its current market capitalisation.

The funds will be used to strengthen the balance sheet and reduce debt (increasing for solvency). This approach rules out state aid, as has happened with Lufthansa or KLM-AirFrance. Qatar Airways (25.1% holding), has irrevocably undertaken to subscribe for its pro-rata entitlement.
The right issue would be expected to be completed by the end of September.
This rights issue will have a positive impact in the cost of debt for IAG, allowing 2020 losses to be shared among a larger number of shares; and be highly dilutive in 2021.
Upon announcement, the discount to TERP was 35.86%. Discount and dilution (60%) are higher than what was expected by the market.
Vs. peers, IAG is hit by the higher dependency of profits on premium long-haul traffic, especially the North Atlantic corridor, where some analysts estimate that IAG obtains almost half of its profits.
On today's session, there has been high volatility in the share price with a day high/low of 207.7p/190.7p, and closed at 200.0p vs a prior closing of 200p, with roughly GBP 30 mn traded in London; similar story in Madrid, a day range of EUR 2.1-2.28, with roughly EUR 23 mn traded there.
The theoretical value of the subscription rights is EUR 0.7716 (according to my calculations), therefore IAG should trade around EUR 1.43 ex-rights. The low subscription price should ensure the success of the rights issue, but high volatility is to be expected. The rights will start trading on 14 September and I will update on any further developments.

Credit

With the end of the cycle, precipitated by the coronavirus pandemic, central banks will step in and there is no risk of interest rates increasing anytime soon.
Redemptions and lack of liquidity have brought down bond prices, and have, therefore, created attractive entry points for some issuers. Prices may not be as extreme as two weeks ago, but still there are opportunities aplenty.
The European Central Bank will purchase sovereign and corporate debt at a pace never seen before. It will provide a strong support for investment grade issuers. However, the credit market remains fragmented. The activity on primary market has not recovered for riskier issuers.
I have compiled a list of bonds by Spanish issuers (or whose parent is Spanish) in a variety of sectors. Most are multinational companies and should be able to emerge less harmed by the looming crisis.
Please read on.
(All data have been sourced from Capital IQ)

With the end of the cycle, precipitated by the coronavirus pandemic, central banks will step in and there is no risk of interest rates increasing anytime soon.
Redemptions and lack of liquidity have brought down bond prices, and have, therefore, created attractive entry points for some issuers. Prices may not be as extreme as two weeks ago, but still there are opportunities aplenty.
The European Central Bank will purchase sovereign and corporate debt at a pace never seen before. It will provide a strong support for investment grade issuers. However, the credit market remains fragmented. The activity on primary market has not recovered for riskier issuers.
I have compiled a list of bonds by Spanish issuers (or whose parent is Spanish) in a variety of sectors. Most are multinational companies and should be able to emerge less harmed by the looming crisis.
Please read on.
(All data have been sourced from Capital IQ)

Founder, Riedel Research

David Riedel

Founder

Independent equity research on GEM Markets

Riedel Research

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Thematic (Sector/Industry)

<ul>
<li>Russia: Recent study estimates that unreported activity accounts for about 20% of GDP. Moscow could use this lost tax revenue.</li>
<li>Singapore: MAS qtrly survey of professional forecasters estimates 2019 GDP growth at 2.5% for this year, down from median estimate of 2.7% in the September survey.</li>
<li>South Africa: Morgan Stanley is calling for outperformance by South African economy and stocks in the coming months.  Focus on Healthcare and Retail Names)</li>
<li>India: Modi’s government is accused of politicizing economic data government in a growing debate over the credibility of India’s official growth estimates.</li>
</ul>


Russia: Recent study estimates that unreported activity accounts for about 20% of GDP. Moscow could use this lost tax revenue.
Singapore: MAS qtrly survey of professional forecasters estimates 2019 GDP growth at 2.5% for this year, down from median estimate of 2.7% in the September survey.
South Africa: Morgan Stanley is calling for outperformance by South African economy and stocks in the coming months.  Focus on Healthcare and Retail Names)
India: Modi’s government is accused of politicizing economic data government in a growing debate over the credibility of India’s official growth estimates.


RRG Weekly - Is Modi Government Cooking the Books? Brexit Risks Rise. South Africa Could Surprise

United Kingdom

International Consolidated Airlines Group S.A. provides transportation services. The Company offers international and domestic air passenger and cargo transportation services. International Consolidated Airlines Group serves customers worldwide.

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International Consolidated Air (IAG SM)

IAG's Emergency Landing

IAG is conducting a EUR 2,741 rights issue .

Jesus Rodriguez Aguilar

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David Blennerhassett

IAG's Jumbo Rights Issue Takes Off

Largely expected, no hit 0.8% less

Jesus Rodriguez Aguilar

Spanish Issuers' Credit Opportunities

With the end of the cycle, precipitated by the coronavirus pandemic, central banks will step in and there is no risk of interest rates increasing...

Jesus Rodriguez Aguilar

RRG Weekly - Is Modi Government Cooking the Books? Brexit Risks Rise. South Africa Could Surprise

Russia: Recent study estimates that unreported activity accounts for about 20% of GDP. Moscow could use this lost tax revenue. Singapore: MAS...

David Riedel

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