raising funding for airBaltic was critical

Investment banker and Prudentia partner Girts Rungainis said that the airBaltic bond rate is relatively high, but given the airline’s situation and the geopolitical situation, it should be considered profitable. Rungainis expected that the interest rate might be even higher.

“The bond issue shows that investors are ready to invest and do not believe that the company is at risk of insolvency. At the same time, this rate indicates that the risks are high – both for the company itself, and the geopolitical risks of the region, and the tourism industry in the region,” – said Rungainis.

In his opinion, the bond rate might have been even higher, but the state’s participation in their acquisition helped reduce it. According to Rungainis, airBaltic did not issue five-year bonds, but bought time so that it might wait for interest rates on the market to decline.

“The company’s results are good, recovery is underway from the crisis caused by Covid-19. Most likely, within two years, airBaltic will be able to finance these bonds at a lower rate,” Rungainis said.

He recalled that a year ago it was said that airBaltic would not be able to refinance existing bonds, but the company succeeded. State participation is also minimal, Rungainis emphasized.

When asked whether it was possible to issue bonds with a lower interest rate, Rungainis explained that these were still high-risk bonds, since aviation is a “heavy” industry and, excluding some market leaders, the situation for other airlines is difficult.

Rungainis added that the expressed interest in airBaltic securities worth more than 800 million euros only indicates that this number of investors wanted to purchase bonds at exactly this rate. If the rate had been lower, there might have been less investor interest.

In turn, SEB banka economist Dainis Gašpuitis said that attracting financing for airBaltic was critically necessary, without much room for maneuver. If there was confidence in high demand, perhaps one might hope for a slightly lower rate, but still not much, says Gašpuitis.

“Due to both the industry and the company, including increased geopolitical risks, borrowing costs would have been high. Therefore, most likely, the decision was made to offer a rate that should have caused an appropriate response from investors. The primary goal there was a refinancing of obligations and continuation of activities, which was achieved,” Gašpuitis emphasized.

The economist added that the industry is now recovering, and the chances of a subsequent improvement in the company’s financial performance are also growing. At the same time, it is necessary to take into account the strategic influence of airBaltic on the Latvian economy, which is why the continued operation of the enterprise should be regarded as a positive outcome.

The next step is to continue working on the growth of the company and raising capital, Gašpuitis concluded.

According to Citadele Bank economist Mārtiņš Abolins, it is definitely positive that airBaltic was able to successfully issue bonds and refinance the previous loan. Given the geopolitical situation, high interest rates and the unsuccessful bond issue in the fall, as well as the approaching maturity of the previous loan, there was certainly a risk that airBaltic would not be able to attract investor interest.

“If this issue had failed, the company would have found itself in a very difficult situation, since it did not have the financial ability to return the previous bonds. This, most likely, is one of the reasons why the government decided to participate in the bond issue,” – Abolins explained.

However, the economist admitted that the bad news is that financing costs are very high and this will create a significant financial burden on airBaltic. The strong investor interest, according to Abolins, suggests that it was possible to borrow at a slightly lower interest rate, but investor interest in purchasing bonds before their issue is very difficult to assess.

In this case, the risk that airBaltic might overpay slightly for the loan should be weighed once morest the risk that the bond issue might fail, which would make the company’s prospects very uncertain. Abolins emphasized that the problem of the urgent need for financing has now been resolved, however, expensive financing may become a problem in the future, including for the listing of the company’s shares on the stock exchange.

Latvian national airline airBaltic has reportedly issued bonds worth €340 million, Transport Minister Kaspars Briskens tweeted on Tuesday evening.

In a statement to the media, airBaltic informs that it has issued secured bonds with a maturity of 5.25 years in the amount of EUR 340 million with an interest rate of 14.50%.

As Brishkens noted, market demand for these bonds more than doubled the planned amount.

Prime Minister Evika Silina tweeted that the airline “successfully completed the largest corporate bond issue in Latvian history.”

Last year, airBaltic’s audited turnover amounted to 664.289 million euros, which is 33.2% more than in 2022, and its profit was 33.852 million euros compared to losses a year earlier.

The Latvian state owns 97.97% of the shares of airBaltic, and the financial investor Aircraft Leasing 1 – 2.03%.