NZ purchase maximum share of VA, hitting 25.99% limit

[markis10]

NZ have announced to the market this morning that they have hit the limit on shares they can buy in VA under current circumstances.

http://www.asx.com.au/asxpdf/20140617/pdf/42q7p78ssbtc6f.pdf

 

[burmans]

NZ have announced to the market this morning that they have hit the limit on shares they can buy in VA under current circumstances.

http://www.asx.com.au/asxpdf/20140617/pdf/42q7p78ssbtc6f.pdf

A bit of irony that's its VA that have hit a foreign ownership limit rather than QF!

 

[Jack_OC]

A bit of irony that's its VA that have hit a foreign ownership limit rather than QF!

It's not that VA has hit a foreign ownership limit, it's that Air NZ (AIZ) has hit the limit on the amount of VA shares that it specifically can by. In addition to the 25.99% of VAH that AIZ owns, Etihad owns 19.99% and Singapore Airlines owns 19.53%, according to the most recent ASX notifications. So those three foreign airlines alone own over 65% of VAH. I would assume total foreign ownership is well north of 70% (not sure how much Branson still owns?), and to the best of my knowledge, there is no overall limit on foreign ownership of VAH.

In contrast, as things stand, total foreign ownership of Qantas is limited to 49%, and the combined shareholding of foreign airlines is not allowed to exceed 35%. I'm generally not a QF or Alan Joyce fan, but this is one issue on which they have my sympathy, as it's clearly not a level playing field as far as international investment is concerned.

 

[markis10]

It's not that VA has hit a foreign ownership limit, it's that Air NZ (AIZ) has hit the limit on the amount of VA shares that it specifically can by. In addition to the 25.99% of VAH that AIZ owns, Etihad owns 19.99% and Singapore Airlines owns 19.53%, according to the most recent ASX notifications. So those three foreign airlines alone own over 65% of VAH. I would assume total foreign ownership is well north of 70% (not sure how much Branson still owns?), and to the best of my knowledge, there is no overall limit on foreign ownership of VAH.

In contrast, as things stand, total foreign ownership of Qantas is limited to 49%, and the combined shareholding of foreign airlines is not allowed to exceed 35%. I'm generally not a QF or Alan Joyce fan, but this is one issue on which they have my sympathy, as it's clearly not a level playing field as far as international investment is concerned.

EY had 21.24% as of mid May.

 

[Jack_OC]

EY had 21.24% as of mid May.

Yes you're right actually - sorry I looked at the "previous notice" voting power rather than "present notice". Similarly, SIA is now up to 22.17%.

I wonder if any/all are shaping up for a takeover bid? It's relatively unusual for major companies to acquire large stakes in other companies in the same industry unless that is their ultimate goal (or at least an option they want to keep open).

 

[Jack_OC]

According to this, NZ, EY, SQ and Virgin Group now own almost 80% between them. EY and SQ are also approaching the limit of their current approvals.

 

[burmans]

It's not that VA has hit a foreign ownership limit, it's that Air NZ (AIZ) has hit the limit on the amount of VA shares that it specifically can by. In addition to the 25.99% of VAH that AIZ owns, Etihad owns 19.99% and Singapore Airlines owns 19.53%, according to the most recent ASX notifications. So those three foreign airlines alone own over 65% of VAH. I would assume total foreign ownership is well north of 70% (not sure how much Branson still owns?), and to the best of my knowledge, there is no overall limit on foreign ownership of VAH.

In contrast, as things stand, total foreign ownership of Qantas is limited to 49%, and the combined shareholding of foreign airlines is not allowed to exceed 35%. I'm generally not a QF or Alan Joyce fan, but this is one issue on which they have my sympathy, as it's clearly not a level playing field as far as international investment is concerned.

Yes I realise that its not "the" same foreign ownership limit but its still "a" foreign ownership limit. The whole point of FIRB is to look at reasonable ownership levels by Foreign Investors, you can't really tell me with a straight face that a FIRB restriction is not a limit related to them being foreign owned.

 

[Jack_OC]

Yes I realise that its not "the" same foreign ownership limit but its still "a" foreign ownership limit. The whole point of FIRB is to look at reasonable ownership levels by Foreign Investors, you can't really tell me with a straight face that a FIRB restriction is not a limit related to them being foreign owned.

Of course it's a restriction related to Air NZ being foreign, but the point I was making is that the restriction was placed on Air NZ, not on VA. You said "VA have hit a foreign ownership limit", but they haven't, as there is actually no limit on foreign ownership of VA, there are just limits on the amount that certain individual foreign airlines can own. Sorry if that sounds like semantics, but it's not, as this distinction has a huge bearing on the current state of (and the future of) both airlines.

As I said in my follow up post, the four largest foreign shareholders now own 80% of VAH, with permission in place for EY and SQ to increase their collective stakes by a further couple of percent. And as far as I know, there is nothing stopping any other foreign entity coming in to buy some or all of the remainder (in fact the remainder might well already be largely foreign owned). If the overall foreign ownership restriction was lifted on Qantas, to mirror the rules related to VA, it would completely change the dynamics of the Qantas share price.

Anyway, I have no doubt that you already knew all this, and I'm gathering your initial comment was a bit tongue in cheek, but I responded as a lot of people genuinely don't seem to get that the restriction on foreign ownership of Qantas is (a) completely different to the rules that apply to VA and (b) a really important factor with regard to the viability of Qantas.

 

[mikenz]

Arent the restrictions more of an Australian business regulation, where if you hold over a certain threshold you have to make a takeover offer or something like that?

 

[burmans]

Yes I am aware of the difference, however I think that a couple of Qantas's claims remains untested.

1. Lack of level playing field, yes clearly this claim is true
2. This is preventing the company seeking capital. Well as fair as I know they havent tried so unsure if this is really true or not. We only have Qantas's word that Aus investors would not be pepared to stump up.
3. Affecting viability, well given 2 there is a question on this. More to the point though Air NZ are I am sure buying into VA because they think its a good investment, not just because they can. Where's the evidence that other airlines actually want to put their money into Qantas? If there are questions about long-term viability (and I have no doubts on this) where do we think this theroetical saviour will come from.

 

[burmans]

Arent the restrictions more of an Australian business regulation, where if you hold over a certain threshold you have to make a takeover offer or something like that?

No there are creep provisions to increase your holding by X percent every 6? months in Australian companies, I think. The article stated it was a FIRB restriction, I see no reason (absent of facts to the contrary) to suggest this is wrong.

 

[markis10]

2. This is preventing the company seeking capital. Well as fair as I know they havent tried so unsure if this is really true or not. We only have Qantas's word that Aus investors would not be pepared to stump up..

I am no expert on finance, but did they not just complete a capital raising via bonds to move that debt becoming payable back 5 years, some 500M or so? And was not just last year they were returning capital via a share buyback?

 

[Jack_OC]

2. This is preventing the company seeking capital. Well as fair as I know they havent tried so unsure if this is really true or not. We only have Qantas's word that Aus investors would not be pepared to stump up.

You may or may not be right that this remains untested, but companies don't generally make it public when they're testing the water for investment, so I don't think any of us could know either way. Additionally, it is fair to say that the investor pool in Australia is miniscule. All of the (comparatively very small) ASX-listed companies that I have worked for have relied largely on overseas investors when raising capital. It's not impossible to rely solely on Australian investors, but it's certainly a lot more difficult, especially for a large company.

3. Affecting viability, well given 2 there is a question on this. More to the point though Air NZ are I am sure buying into VA because they think its a good investment, not just because they can. Where's the evidence that other airlines actually want to put their money into Qantas? If there are questions about long-term viability (and I have no doubts on this) where do we think this theroetical saviour will come from.

I agree with most of this - in particular that other airlines are investing into VA because they think it's a good investment. The problem is, even if other foreign airlines (or even institutional funds) have the same view of investing in Qantas, they can't do so to any great extent. The reason there is no evidence that other airlines want to put their money into Qantas might simply be because the other airlines know they can't, so they don't even waste their time thinking about it. Are you saying you don't think Emirates would be interested?

No there are creep provisions to increase your holding by X percent every 6? months in Australian companies, I think. The article stated it was a FIRB restriction, I see no reason (absent of facts to the contrary) to suggest this is wrong.

Yes, I agree this seems to be a FIRB restriction. There are other restrictions too, but I don't think that's the issue here.

I am no expert on finance, but did they not just complete a capital raising via bonds to move that debt becoming payable back 5 years, some 500M or so? And was not just last year they were returning capital via a share buyback?

Selling bonds is essentially borrowing money. Share buybacks, meanwhile, are generally only put in place when a company's share price is falling and/or already undervalued. If there was strong demand for Qantas shares, for example if three major foreign entities were competing with each other to raise their stakes, there would have been no share buyback.

 

[Himeno]

Would it be possible for other oneworld members to buy into QF and have enough shares to force a change in CEO?

 

[eastwest101]

Would it be possible for other oneworld members to buy into QF and have enough shares to force a change in CEO?

Why would they do that? Some would say that AJ is doing a great job giving away loyal or high value customers to CX/BA/AA free of charge. They would only be concerned about the leakage of any high value customers from QF to EK and/or Star Alliance carriers.

Seriously though, I don't recall Oneworld members stepping front of trains/taking bullets when Malev was going under, but I didn't follow it closely so others may have more detail. With the possibility of the demise of QF in the future, you would think that CX would provide enough coverage provided AA/CX/BA and MH remain, and as a matter of fact I suspect that OneWorld spend more time worrying about the possibility of CX or MH leaving rather than demise of QF.

 

[burmans]

You may or may not be right that this remains untested, but companies don't generally make it public when they're testing the water for investment, so I don't think any of us could know either way. Additionally, it is fair to say that the investor pool in Australia is miniscule. All of the (comparatively very small) ASX-listed companies that I have worked for have relied largely on overseas investors when raising capital. It's not impossible to rely solely on Australian investors, but it's certainly a lot more difficult, especially for a large company.

Companies may not make it public but there are rumours of interest for most takeovers well before they actually happen. If anything foreign investors have been selling out of Qantas, last I heard the level was at 39% whereas it had actually breached the limit in the past.

I agree with most of this - in particular that other airlines are investing into VA because they think it's a good investment. The problem is, even if other foreign airlines (or even institutional funds) have the same view of investing in Qantas, they can't do so to any great extent. The reason there is no evidence that other airlines want to put their money into Qantas might simply be because the other airlines know they can't, so they don't even waste their time thinking about it.

Given the government has indicated a willingness to change the Qantas limit, yes I think there would be some lobbying. There has been exactly none that has surfaced.

Are you saying you don't think Emirates would be interested?

Pretty much, they have two options, get the benefits via an alliance or buy into a company where the investment fundamentals don't look that great. I think the alliance is working just fine for them, why would they prefer having a dud investment on their hands.

 

[Himeno]

Why would they do that? Some would say that AJ is doing a great job giving away loyal or high value customers to CX/BA/AA for free of charge. They would only be concerned about the leakage of any high value customers from QF to EK and/or Star Alliance carriers.

When JL was having problems, oneworld was offering everything they could to help

 

[TomVexille]

When JL was having problems, oneworld was offering everything they could to help

Because DL was set to become the majority shareholder and bring JL into SkyTeam