Why the Air New Zealand (ASX:AIZ) share price is on watch

The Air New Zealand Limited (ASX: AIZ) share price is on watch after deferring a planned capital raise due to changing operating circumstances.

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The Air New Zealand Limited (ASX: AIZ) share price is worth watching in early trade after a capital raise update from the Kiwi airline.

Why is the Air New Zealand share price on watch?

Air New Zealand shares could be on the move after the company provided an update on its planned capital raising timing. The Kiwi airline had previously said that it expects to complete an equity capital raise by 30 June 2021. 

That decision was aided by a letter from the Crown confirming that it would participate in the raise to maintain a majority shareholding. The company has been working since then with the Crown and its advisers on a suitable timeline.

However, things appear to have changed this morning. Air New Zealand shares are worth watching as the company has agreed to defer the equity capital raise to assess changing circumstances including the Trans-Tasman travel bubble.

The Board “continues to assess the airline’s capital structure and longer-term funding needs”. The proposed capital raise is now targeted to be undertaken before 30 September 2021.

Importantly, the Crown will maintain its commitment to a majority shareholding. Air New Zealand will also secure a Crown Loan for a total size of NZ$1.5 billion. That facility will comprise two upsized tranches from what was previously announced.

The first tranche will increase from NZ$600 million to NZ$1,000 million. Air New Zealand’s second tranche will be upsized from NZ$300 million to NZ$500 million. Pricing will decrease to 3.5% p.a. on the first tranche from 7-8% p.a., while second tranche pricing will decrease from ~9% p.a. to 5.0% p.a.

Foolish takeaway

The Air New Zealand share price will be worth watching in early trade following this morning’s capital raising update. Shares in the Kiwi airline have surged 6.1% in the last week after the Trans-Tasman Travel Bubble update.

Today’s announcement defers a planned capital raise but secures Crown support for both equity and debt funding.

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Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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