IAG has collapsed on the stock market this Tuesday, after announcing that it will issue convertible bonds for 825 million euros to face the forced hibernation due to the coronavirus pandemic. The airline has sunk 7.2%, to 2.27 euros.
This type of debt offers the possibility of being transformed into shares at maturity, so it would imply a dilution similar to that of a capital increase that is dragging the group of airlines that was born from the merger of Iberia and British Airways on the market.
The issue, due in 2028, “seeks to strengthen the balance and liquidity, and greater operational and strategic flexibility to benefit from a recovery in demand,” according to the company itself.
The operation will take place on May 18. The interest has been set at 1.125% and the conversion price at 3.3694 euros. IAG will have the option to early redeem all (and not part) of the bonds as of June 8, 2026 (5 years and 21 days from the date of disbursement and issuance of the bonds), plus accrued interest, based on to certain detailed conditions.
Since the start of the pandemic, IAG has taken a number of decisive steps to bolster its liquidity, resulting in a total amount of cash and credit lines of €10.5bn, up from €9.1bn available at the end of 2019.
Uncertainty
The unknowns about the recovery of the sector do not go away, especially after the green list of the United Kingdom — left out Spain, even the Canary Islands and the Balearic Islands, Italy or France, saving only Portugal.
But this same Tuesday, the investment firm Bernstein has insisted on its recommendation to buy IAG shares, it has even increased the target price a few cents, from 2.88 euros to 2.91, which implies an upside potential of close to 25%
The average valuation of the group of analysis houses that follows the company’s price remains at 2.67 euros, which reduces the route to 15%. 64% of them advise acquiring their titles.
At 40% of the figures of 2009
According to data provided by Siteminder’s World Hotel Index, a guest acquisition platform used by 35,000 hotels and connected to more than 400 booking channels worldwide, 39% of reservations have been registered, compared to those registered on these same dates in 2019 in Spain.
The rest of the listed Spanish companies in the travel and tourism sector, such as Meliá, Aena, Amadeus, NH or eDreams, are also suffering from these uncertainties.
The revenue expectations for this 2021 of these companies have fallen by 20%, as a whole, since the beginning of the year. This drop in forecasts, from 12.5% for Amadeus, to 48% for eDreams, passing through 15% for Meliá or NH and 20% for IAG or Aena, point to a slower recovery, despite that the surveys agree that this summer will be a turning point in the pandemic regarding mobility thanks to a vaccination rate that is advancing in line with the objectives of the European Union (EU).
Contained demand and recovery
From a positive perspective, JP Morgan improved this Monday the recommendation it issues on Amadeus shares from hold to buy. The investment firm highlights the good results of the technology specialized in reservation systems in the first quarter and affirms that it is “a high-quality way to invest in the recovery of travel”.
For its part, Citi admits that the industry will have to deal “with uncertainty ahead of a key summer season.” Goodbody calls the green listing “a rather pathetic start to the reopening”, pointing to Skyscanner data, published by the BBC, which on Friday recorded a 660% daily increase in bookings for Portugal.
This figure reveals the contained demand, and could be transferred to Spain in the coming weeks, as was already seen at the beginning of March, with the first announcements from the United Kingdom about the reopening from the middle of this month of May. The other trick for the country is that the summer lengthens behind, even beyond September.
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