Flight Centre announces $700 million capital raising to secure its future

The Flight Centre Travel Group Ltd (ASX:FLT) share price remains suspended, but will return this week after raising $700 million to secure its future…

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The Flight Centre Travel Group Ltd (ASX: FLT) share price won’t be returning to trade on Monday.

This morning the travel agent giant has requested the extension of its voluntary suspension until Wednesday.

Flight Centre requested this whilst it finalises its proposed equity raising.

What is Flight Centre aiming to raise?

This morning the company announced a comprehensive package of initiatives designed to strengthen its balance sheet and liquidity position.

These are on top of the previously announced cost reduction and cash preservation initiatives implemented to help overcome the unprecedented travel and trading restrictions imposed by governments in response to the COVID-19 pandemic.

The latest initiatives include a ~$700 million fully underwritten equity capital raising, comprising a ~$282 million institutional placement and a ~$419 million 1-for-1.74 accelerated pro rata non-renounceable entitlement offer.

These funds are being raised at $7.20 per new share, which represents a 27.3% discount to the last traded price of $9.91.

It will also result in the issue of approximately 97.2 million new fully paid ordinary shares, representing approximately 96.1% of existing Flight Centre shares on issue.

In addition to this, the company has organised a $200 million increase in commitments from its existing lenders to bolster its balance sheet further.

Another initiative will see the closure of more than 50% of its global leisure shops. This includes more than 40% of Australian leisure shops. This will leave 516 Australian stores and 222 international stores operating.

And finally, the company has now been able to estimate the benefits of the previously announced cost control initiatives and cash preservation initiatives. Management anticipates that these will reduce its annualised operating expenses by approximately $1.9 billion. This is expected to be realised by the end of July 2020.

Overall, the package of initiatives will provide Flight Centre with approximately $2.3 billion of liquidity and a monthly cash operating cost base of approximately $65 million (post one-off implementation costs of approximately $210 million).

Management believes this will be sufficient for the company to trade through this period of dislocation and uncertainty across the travel sector.

Trading update.

Incidentally, the company provided the market with an idea of just how tough it has been during the coronavirus crisis.

After tracking at record levels through to the end of February, total global transaction value (TTV) fell in March to 20% to 30% of normal levels. This is expected to decline further in the coming weeks as travel restrictions continue.

Managing director Graham Turner appear optimistic that the company is well-placed to benefit when trading conditions improve.

He commented: “The steps we are taking and the strategies we are initiating are carefully considered and are designed to ensure that we: overcome the challenges that we – and most other businesses across most industries – will face in the near-term; and, are ready and well placed to benefit when the trading cycle improves, and as unprecedented travel and trading restrictions are lifted.”

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Flight Centre Travel Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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