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Sydney Airport to raise $2 billion after COVID-19 profit collapse

Sydney Airport

The Sydney Airport Holdings Pty Ltd (ASX: SYD) share price won’t be going anywhere on Tuesday after the airport operator requested a trading halt.

Why is the Sydney Airport share price in a trading halt?

This morning Sydney Airport requested a trading halt while it launched a fully underwritten pro rata accelerated renounceable entitlement offer to raise $2 billion.

According to the release, the offer will allow eligible securityholders to acquire one new Sydney Airport stapled security for every 5.15 securities held on the record date at a price of $4.56 per new security.

The offer price will be the same for both institutional and retail securityholders and represents a 13.2% discount to the theoretical ex-entitlement price of $5.26. This is based on the $5.39 closing price of the Sydney Airport share price on 10 August 2020.

Why is Sydney Airport raising funds?

The airport operator is raising funds to strengthen its balance sheet while it navigates an uncertain aviation market.

Sydney Airport Chief Executive Officer, Geoff Culbert, commented: “The equity raising will position Sydney Airport for the future. Sydney Airport took pre-emptive action at the start of the COVID-19 pandemic, putting in place significant liquidity which gave us the flexibility to monitor how the situation evolved. Six months into the pandemic, there remains uncertainty as to how long it will take for aviation markets to return to pre-COVID-19 levels.”

“Accordingly, Sydney Airport is taking further decisive action to strengthen its balance sheet and to help ensure it remains well capitalised to meet the challenges presented by an uncertain COVID-19 operating environment, and to ensure it is positioned for growth in the future,” he added.

Mr Culbert also explained the rationale for raising equity through a renounceable entitlement offer.  

He said: “It is important to note that we chose to raise equity via a renounceable entitlement offer as that is the fairest structure for all securityholders, particularly retail securityholders. Securities will be offered on a pro-rata basis and securityholders who participate will not be diluted, which is important to us given many have been long term investors in Sydney Airport.”

Following the entitlement offer, Sydney Airport’s pro forma net debt position will be significantly reduced from $9.1 billion to $7.1 billion. This means its pro forma net debt to FY 2019 EBITDA will be reduced from 6.8x to 5.3x.

Interim results release.

In addition to the equity raising, Sydney Airport has released its interim results for FY 2020 earlier than planned. 

Sydney Airport posted a loss after tax of $53.6 million for the half year. This was of course driven by a material decline in passenger volumes due to the COVID-19 related traffic restrictions which were implemented progressively from February 2020. For the six months, Sydney Airport welcomed 9.4 million passengers through its gates. This was a 56.6% decline on the prior corresponding period.

One positive was its sizeable reduction in operating costs. They reduced by 20.5% during the first half, with savings tracking in line with its cost reduction plan.

CEO Geoff Culbert said: “We announce our half year results today in a challenging environment. Whilst we delivered a solid start to 2020, the subsequent spread of COVID-19 saw the aviation industry deteriorate dramatically from late February.”

“As an organisation we have adapted rapidly to a new environment and worked hard to tightly manage our costs, strengthen our balance sheet, reach fair and equitable outcomes with our tenants and aviation partners, and implement COVID-safe protocols to protect our passengers and staff,” he concluded.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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