Finnair has made a significant move by announcing an Extraordinary General Meeting (EGM) aimed at authorizing the Board of Directors to resolve on a share issue, also known as the “Offering.”
This decision is geared towards raising gross proceeds of up to EUR 600 million. In order to strengthen the airline’s financial position.
The Offering and Its Purpose
The Offering, set to be finalized during the fourth quarter of 2023 (subject to market conditions), hinges on the approval of the Company’s shareholders at the upcoming EGM on October 27, 2023. But what is the core purpose of this move?
The gross proceeds from the Offering will play a crucial role in bolstering Finnair’s balance sheet and overall financial position.
This financial infusion is essential for effectively managing the Company’s existing financial obligations and liabilities.
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Fueling Profitable Growth
Finnair is not just looking at short-term financial relief. The Offering is intricately tied to the Company’s long-term strategy aimed at achieving sustainable and profitable growth.
This move is strategic, positioning Finnair to attain a comparable operating profit margin of 6 percent by the end of 2025.
In addition to growth, managing debt is another critical aspect of this initiative. Finnair aims to achieve a net debt to comparable EBITDA ratio of 1-2x by the end of 2025.
Furthermore, the Company intends to reinstate its ability to provide shareholder distributions starting from 2025, based on 2024 earnings.
Utilization of Proceeds
It’s essential to understand how the net proceeds from the Offering will be allocated to fulfill these ambitious objectives.
Addressing Capital Loan
A significant portion of the net proceeds will be directed towards settling the outstanding portion of the EUR 400 million capital loan (referred to as the “Capital Loan”).
This move is crucial for reducing the Company’s financial liabilities and ensuring a sustainable balance sheet.
Hybrid Bond Redemption
To further strengthen its financial standing, Finnair has already taken steps by redeeming its capital securities worth EUR 200 million (hybrid bond) on September 1, 2023. T
his proactive measure contributes to reducing the Company’s financing costs.
Support and Backing
The success of this Offering is underpinned by the support of Finnair’s main shareholders.
The State of Finland, Finnair’s largest shareholder, representing approximately 55.8 percent of the Company’s shares (including treasury shares), has expressed its support for the proposal and intends to subscribe for its pro rata share of the new shares.
The State of Finland plans to use the subscription price to offset a corresponding amount of the Capital Loan principal.
Additionally, Varma Mutual Pension Insurance Company, Elo Mutual Pension Insurance Company, and Ilmarinen Mutual Pension Insurance Company, representing approximately 3.4 percent of the Company’s shares (including treasury shares), have committed to voting in favor of the proposal at the EGM.
They also plan to subscribe for their respective pro rata share of the Offering, subject to customary terms and conditions.
Insights from Finnair’s Leadership
Sanna Suvanto-Harsaae, Finnair’s Chair of the Board emphasizes the importance of building a sustainable balance sheet to drive sustainable growth. S
he highlights how the Company has successfully navigated external challenges, including the impact of COVID-19 and the closure of Russian airspace.
This rights offering is seen as the next logical step towards establishing a more stable capital structure and enhancing shareholder value.
Topi Manner, Finnair’s CEO highlights the achievements made by Finnair in redirecting its network, optimizing its fleet, and implementing strategic initiatives, resulting in higher profitability than in 2019.
He underscores that the capital raise will reduce the Company’s cost of capital, strengthen resilience, and enable future investments, aligning with the long-term goal of carbon neutrality.
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