Qantas Opens Share Purchase Plan to Retail Investors
Qantas Airways Limited (ASX:QAN) has on 02 July 2020, opened its Share Purchase Plan to retail investors. This follows the completion of the institutional share placement, worth a total of A$1.36 billion. Current shareholders can access up to A$30,000 of new Qantas shares, with no brokerage or transaction costs. As outlined by the Qantas Board, the share purchase plan, which will be open till 22 July 2020, aims to raise a total of $500 million. Moreover, shares will be available at a rate of A$3.65 per share, representing a 12.5 per cent discount on Qantas' closing price before it entered a trading halt.
Qantas outlines that the funds are to improve the airline’s balance sheet and financial flexibility, expedite its recovery post-Covid-19. The recovery plan put forward 25 June 2020, outlines the goals and strategy Qantas has in place to recover from the economic downturn. The three-year plan includes a cost reduction of A$15 billion over the three years. Specifically, the plan comprises of A$2.4 billion of restructuring benefits, A$2.6 billion of workforce reductions and supplier costs, A$4 billion in direct savings and A$6 billion in fuel usage savings.
For 1H FY20, Qantas has reported an underlying profit before tax of A$771 million. However, with the current restrictions, revenues will undeniably be affected. Yet, the completion of the capital raising alongside cost reduction measures will potentially allow for a break-even or a small underlying profit before tax for FY20. Qantas CEO, Alan Joyce, announces that the airline is committed to providing support to its affected workers. Mr Joyce states that the recapitalisation efforts are purely to ensure that Qantas will recover as soon as possible. Qantas’ decision to cancel dividend payments in March, preventing cash outflows of A$201 million, further reflects this general sentiment. Several institutions comment on the recent capital raising, with Credit Suisse emphasising the risk of Qantas’ recovery plan.
Macquarie remains confident in Qantas, stating the capital raising will position Qantas for increased profitability through the pandemic. Macquarie forecasts this for FY22. This matches the overall consensus. The liquidity injections provided by the institutional share placement and share purchase plan will provide Qantas with the liquidity to ensure that it is future proof and can recover effectively.
Moreover, the increase in capital will allow Qantas to take advantage of opportunities that appear following its recovery. Interestingly, Qantas is currently facing legal action due to mismanaging JobKeeper funds. In May, the Fair Work Commission discovered that Qantas had been placing earnings for an employee paid per month, to non-corresponding fortnights which allowed the airline to pocket some of the pay.
By Caroline Wong
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