The shares of Norwegian Air plunged by more than 60 per cent on Tuesday as they resumed trade after the airline proposed a financial rescue package on April 8th that would significantly dilute existing equity.
If approved by creditors and shareholders, the plan would convert $4.3 billion (€3.9 billion) of debt into equity, and also raise some new equity, wiping out much of the remaining value of the company’s current shares.
The budget carrier has grounded most of its fleet due to the impact of Covid-19 on travel and, on March 16th, announced the temporary layoff of 7,300 staff, about 90 per cent of its workforce.
Norwegian’s shares plunged 62.5 per cent in early trade to an all-time low of 3.10 crowns, valuing the company at just 500 million Norwegian crowns (€44.6 million).
Financial problems
Norwegian was facing financial problems even before the coronavirus outbreak. Before Tuesday’s fall, its shares were down 78 per cent this year, underperforming other major European airlines, which were down 30-60 per cent.
Norway’s government last month offered loan guarantees to airlines, including 3 billion kroner for Norwegian Air. But the aid came with strict terms: the company has qualified for only a tenth of it for now, and needs to improve its equity ratio to access the rest.
While the government views airlines as important infrastructure, it pointed to Norwegian’s high indebtedness before the crisis and said it doesn’t see state support as an option unless other stakeholders also make an effort.
Norwegian had total debt of about $7.5 billion at year-end, with more than $800 million coming due this year. The company is now negotiating conversion of more than half of its debt before putting the plan to a vote at an extraordinary general meeting on May 4th.
The company is also asking shareholders to approve a private placement of as much as 400 million kroner, which would be the fourth in two years. In interviews in local media this week, chief executive Jacob Schram asked equity investors to stick with the company, arguing there was "significant upside" ahead.
The Oslo stock exchange said on Tuesday that trading in Norwegian’s shares would be subject to special observation until there was further clarification of the airline’s situation.
Special observation is used under circumstances that may make the valuation of a security particularly uncertain, according to the market operator’s guidelines. – Reuters/Bloomberg