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IAG considers asking for €2.75 billion from shareholders – will they bite?

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IAG, the parent company of British Airways, was forced to issue a Stock Exchange announcement on Friday after Reuters reported that it was planning a €2.75 billion rights issue to prop up its shrinking balance sheet.

The appetite for this will be interesting.  The IAG share price fell by 5% on Friday, but it could arguably have been worse.  It will be interesting to see how keen shareholders are to put their hands in their pockets, when IAG could arguably follow Air France KLM and Lufthansa and demand a similar €10 billion of soft loans and non-repayable grants from the Spanish, and potentially UK, Governments.

IAG looking to raise €2.75m from shareholders

What is a rights issue?

For readers unfamiliar with City terms, a ‘rights issue’ is when a company issues new shares – usually at a discount to the existing share price – and offers them for sale to its existing shareholders, pro-rata to their existing shareholding.

This bit is simple enough.  What makes it more complex is what happens if you do not take up your rights.

Because the new shares are being offered to you at a discount to the current share price, your ‘rights’ have a value in themselves.  If you refuse to invest new money, your ‘rights’ are sold on the open market and you are sent the money.  It is roughly the equivalent of being sent a money-off coupon for a product you don’t want to buy, and choosing to sell the coupon on eBay instead.

IAG has already done a lot to raise cash

Desperate times call for desperate measures, of course.  We’ve already seen, purely from the British Airways side of the IAG table:

the sale of the best of the British Airways Galleries Lounge art collection

a £750 million advance payment from American Express in exchange for extending the current UK BA credit card contract 

the mortgaging of 48 aircraft, raising $750 million 

a loan of £300 million from the UK Government’s Coronavirus Corporate Finance Facility

and the drawing down of previously arranged debt facilities

This ignores the money raised by Iberia and by IAG centrally.

Of course, with the company burning through €200 million of cash per week, the actions above have only a temporary impact on the business.

Would a rights issue succeed?

The success of any rights issue will depend on the enthusiasm of Qatar Airways, IAG’s primary shareholder with 25%, to take part.  Based on IAG’s valuation of £3.95 billion on Friday night, shareholders will be asked to put up the equivalent of 60% of the current value of their existing shares.

IAG will also have to be careful to ensure that the shareholding by non-EU entities remains below 49.9%.  This could be tricky if Qatar Airways takes up its rights in full but other shareholders do not.

The real question is whether shareholders are happy to support IAG management in their plan to burn through shareholder funds rather than approach Government for a bailout.  €2.75 billion will be gone after 14 weeks at the current spending rate, after all, and what does the airline do then?  Return to shareholders for yet another €2.75 billion?

IAG rights issue

Here is the full Stock Exchange announcement:

Statement in relation to media speculation regarding equity raise

 International Airlines Group (IAG) notes recent media speculation regarding the possibility of IAG undertaking an equity raise. 

As detailed in its Q1 financial results announcement on 7 May, going into the crisis IAG had a strong balance sheet and liquidity with cash and undrawn facilities at 30 April of €10 billion. IAG has taken appropriate actions to strengthen its balance sheet and boost its liquidity position. This includes the announcement earlier today that IAG has extended its global commercial partnership with American Express and will receive a payment of approximately £750 million.

The Group is evaluating the merits of a rights issue of up to €2.75 billion that would further strengthen IAG’s balance sheet. No decision has been made as to whether or when to proceed with a rights issue.

A further announcement will be made as appropriate.

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Comments (67)

This article is closed to new comments. Feel free to ask your question in the HfP forums.

  • Mr(s) Entitled says:
    26 Jul26 July 07:13

    Typo: 14 works = 14 weeks.

    The burn rate may now be slowing with some flights operating and fuel hedges perhaps reflecting a new reduced need. But 14 weeks or 18 weeks, the point remains valid.

  • Paul Pogba says:
    26 Jul26 July 07:35

    At what point do many of the airlines become insolvent?

  • P says:
    26 Jul26 July 07:43

    This should be another wake up call for the UK unions who are still pushing ahead with their trash the BA brand and remove slots stragegy when BA need all the support they can get to encourage travel. IAG I read somewhere due to make a 2Q statement on July 31 so maybe will see how dire things really are.

    • Journeying John says:
      26 Jul26 July 08:51

      Management over the last 4 years have already “trashed the brand” with cut upon cut, densified cabins, inadequate cleaning, mantentance and provisioning.
      When they too accept a 30% downsizing and permanent 40% rewards cuts for those that remain, then the unions should accept the same terms.

      • Paul74 says:
        26 Jul26 July 11:30

        Yep.

      • Lady London says:
        26 Jul26 July 13:58

        No sympathy for BA. They are not British. I wish them well, but one way or another they will survive and emerge more dominant from this.

        The UK must evaluate any support, concession, or continuance of inherited legacy advantages, such as slot domination at Heathrow, only in terms of what is good for the UK and achieves the aims of the UK (such as more environmentally efficient use of flying resources).

        If BA deserves to be supported based on benefit to the UK then I am all for it.

    • insider says:
      26 Jul26 July 09:20

      It will be a wake up call alright. I’m sure the line will be “IAG receiving €2.75bn of shareholders’ funds, so it will definitely have enough money to pay generous redundancy payments and keep existing wages and T&Cs”. Maybe I should apply for a job at Unite

      • Lady London says:
        26 Jul26 July 14:02

        no the wage and working conditions changes are going to go through “no matter what”.

        Personally I could see a further rights iasue relatively soon too.

    • ChrisC says:
      26 Jul26 July 10:52

      BA management are the ones damaging the brand. And have been doing so for quite some time now.

      Many of us have booked flights only for BA to then cancel them in short order.

      Other airlines are providing full service on board yet BA is still basically a sandwich box. Heck if Lufthansa can manage a full (with some modifications) service in business class then surely BA can.

      And what is missing from Robs list is how much taxpayers cash BA has had from the payroll support scheme.

  • Medhat Omran says:
    26 Jul26 July 07:45

    IAG share holders should fully subscribe to the R.I as both further investment and also to strengthen their existing investment.
    I will buy more shares now hoping to build up a bigger holding.

    • Lady London says:
      26 Jul26 July 14:09

      Thats how rights issues work. If you dont use your rights you get diluted. Sometimes that’s the best choice.

  • David S says:
    26 Jul26 July 09:28

    I wouldn’t want to give them a penny more until all labour issues resolved otherwise I’m simply funding BA redundancy payments. Real bad timing from BA

    • callum says:
      26 Jul26 July 11:39

      I don’t quite understand the logic there.

      Whether you give them the money now, or give them the money after the payments, it’s still being “used” for it. Unless you’re saying that if you don’t invest, they won’t pay the redundancy payments (which seems unlikely – but I can’t say I’m following this particularly closely!).

      • insider says:
        26 Jul26 July 11:57

        i think the logic is that he/she doesn’t want to see their money going to enhanced voluntary redundancy payments, hence sort out what these will be before deciding to put more money in

        • Callum says:
          26 Jul26 July 13:37

          Oh I see, that would make much more sense! I was interpreting it as they’re going to be putting in the same amount regardless.

  • Spaghetti Town says:
    26 Jul26 July 09:59

    Sold my IAG holding when the share price went from 1.89 to 3.20 recently. I’m sure there are better investments moving forward.

    • Lady London says:
      26 Jul26 July 14:10

      Warren Buffett thought so too.

      • Spaghetti Town says:
        26 Jul26 July 19:46

        Don’t get me wrong, I’m not saying IAG won’t re-bound but there’s an opportunity cost of investing in IAG.

        • Lady London says:
          26 Jul26 July 20:16

          I agree. I tbink IAG is a very good investment. It just depends on your time horizon and how you need to balance your own liquidity in your portfolio.

          But if I bought IAG now, I would expect to haveto put in 120% of what I would have paid for them last week, into IAG defensively. I’m thinking this rights issue and another one. But IAG is going to be onr of the survivors.

  • Bobby says:
    26 Jul26 July 10:58

    The AMEX deal is not with BA, it’s with IAG Loyalty

    • insider says:
      26 Jul26 July 11:58

      …which is about 50/50 owned by BA and IB

      • insider says:
        26 Jul26 July 12:00

        in fact it looks like it’s 86% owned by BA according to their annual report

        • Rob says:
          26 Jul26 July 12:35

          Correct. IAG Loyalty is a BA subsidiary.

          • Rob says:
            26 Jul26 July 16:44

            It’s an indirect subsidiary of IAG, unless it has changed since the 2019 BA accounts were published.

          • ChrisC says:
            26 Jul26 July 19:37

            the statement I linked to was from March this year

  • Opus says:
    26 Jul26 July 11:14

    I suspect QR will give them that money. Seeing as they said they’re ready to support them in anyway they can. They certainly have it. The question remains, will it now push their stake above 30% whereby they now have to submit a formal takeover?

    • Rob says:
      26 Jul26 July 12:40

      The rules allow for Qatar to go over 30% without making a takeover bid as long as they don’t initiate it (if that makes sense). For eg, if IAG did a share buy-back and Qatar did not take part but others did, that could push Qatar over 30% but would not trigger a takeover.

      A rights issue CANNOT increase Qatar’s shareholding. If others do not take up their rights, the rights will be sold in the open market so the shares will get taken up by someone. The only thing that may change is that the gap between Qatar (if they take it up) and the other shareholders may increase if some of the other large holders boycott it.

    • Lady London says:
      26 Jul26 July 14:17

      Tbere’s no way they would launch a rights issue without enquiries as ro the extent available of QR’s support.

      To get out of any EU restriction on nonEU shareholdi g I am sure there are various ways and means. Guessing they could ‘sell” to another entity based somewhere tax-friendly – Curacao? and increase QR investment or other nonEU investment in that entity. Id be contingency planning solutions now with my investment bankers if I was BA.

      Hence my reminder that BA / IAG is not British and the UK needs to keep its own aims in mind. Becauae IAG surely will.

      • Chrisasaurus says:
        26 Jul26 July 18:28

        Not convinced Curacao is in the EU either!

        But for sure, nobody is launching a rights issue without consulting the shareholder owning a quarter of the business

        • Lady Londontgt says:
          26 Jul26 July 20:21

          That’s the point. NL is in the EU, but Curacao isn’t. I thoughr about Delaware but suspect they dont want to go owards the US /territories that owe obeisance to the US.

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