Tuesday 31 May 2016 by Company updates

Virgin announces new equity investment and alliance with major Chinese airline operator


Virgin is adding a fifth major airline to its shareholder registry, providing greater access to the growing Chinese market

Virgin Airlines

Virgin has announced it has entered into an agreement to form a new strategic alliance with HNA Group, which will include A$159m of equity investment into Virgin, giving HNA Group a 13% shareholding in the airline. A link to the announcement is available here.External link - opens in a new window The strategic alliance is subject to regulatory approvals.

We see the addition of a fifth major airline to Virgin’s shareholder registry as credit positive, offering Virgin greater exposure to the booming China market.

HNA Group is a Fortune Global 500 conglomerate and the largest operator of private airlines in China. HNA Group’s member airlines fly over 77 million passengers annually within China and globally. Member companies under HNA Group’s aviation business include Grand China Airlines, Hainan Airlines and Tianjin Airlines as well as a number of other airlines.

HNA’s investment is to be made in the form of an equity placement of A$159m at $0.30 per share (a 7.1% premium to the last Virgin share price prior to the announcement).

The strategic alliance gives Virgin greater access to the growing Chinese market, which is Australia’s fastest growing inbound travel market.

HNA Group intends to increase its shareholding to 19.99% over time, providing scope for additional investment from this group.

We also note that Virgin’s previously announced capital structure review remains ongoing. Air New Zealand’s 26% shareholding remains for sale and the outcome of this sale process and the review will also be important for Virgin’s credit profile.

For holders of the BlueScope 2018 bonds who are having their bonds partially redeemed, reinvestment into Virgin may be a good option following this credit positive announcement. The Virgin US dollar bond maturing in November 2019 is currently indicatively offered at a yield to maturity of around 6.96% but pricing may change as the market digests this announcement.

Please contact your FIIG representative for further details on the Virgin US dollar bond. Available to wholesale investors only with a minimum face value of USD10,000.