Friday 10 June 2016 by Company updates

Air New Zealand sells 19.98% of Virgin stake to Chinese conglomerate


Air New Zealand has announced the partial sale of its Virgin shareholding to a major Chinese conglomerate

air new zealand

Air New Zealand, one of Virgin’s major airline shareholders with a 25.9% stake, has announced that it has entered into a sale and purchase agreement with Nanshan Group to take a 19.98% stake in Virgin. Under the agreement, Air New Zealand will sell Virgin shares at A$0.33 or roughly a 10% premium to the current share price. The sale is subject to Chinese regulatory approvals.

Nanshan is a large privately owned Chinese conglomerate which owns a small airline in China, Qingdao Airlines, along with interests in sectors spanning aluminium, agriculture, education and property. It is ranked as one of China’s top 500 companies and has described aviation as a key focus area. It has some other interests in Australia, including the Riverside Oaks golf course and the Pullman Sydney Airport hotel, which it purchased last year for A$84 million. Nanshan also purchases bauxite from Rio Tinto for its aluminium production and has a long standing relationship with the Australian Woolmark Company in developing wool products. Nanshan’s aluminium arm (Nanshan Aluminium) is listed on the Shanghai stock exchange and has a market capitalisation of CNY20.9bn (A$4.3bn).

Virgin will now have two major Chinese conglomerates in its share registry (subject to regulatory approvals) with the potential of owning up to 40% of the company shareholding. We believe this is a positive result for Virgin because:

  1. it provides Virgin with increased exposure to the growing Chinese tourism market 
  2. we expect that HNA and Nanshan will have a greater appetite than Air New Zealand to invest more capital into Virgin

Please note Virgin’s previously announced capital structure review is ongoing. Market speculation suggests that Virgin will look to undertake a large equity raise (of between A$500m to A$1bn) to strengthen its balance sheet. Nanshan intends to support the outcome of the Virgin Australia capital structure review as stated in the announcement.

Since the announcement of the equity investment by HNA Group, bond prices in Virgin have rallied with the expectation of a positive outcome for the capital structure review. Bonds are currently indicatively offered at a yield to maturity of around 6.50%.

 A link to the announcement is available hereExternal link - opens in a new window.

Please contact your FIIG representative for further details on the Virgin USD bonds. Available to wholesale investors only with a minimum face value of USD10,000. Pricing is indicative only and subject to change.