Virgin Australia IPO Discussion

[cove]

Yes @QF WP I struggled to get a few from Crestone in this IPO. I got just over 6% of my bid. It isn’t anything too special and there are better industries to consider.

 

[RooFlyer]

Volume appears low? I can’t find a decent price/vol graph. If volume was low, might’ve expected a better price?

Noting that Qantas did almost twice as well today, to this point

 

[SeaWolf]

Some coverage from the ABC.

Five years ago it collapsed. Now Virgin Australia is back on the ASX

Virgin Australia's shares have rallied by about 8 per cent as it has listed on the stock exchange five years after its collapse. The airline's initial public offering was priced at $2.90 per share, raising $439 million for the company.

www.abc.net.au

 

[cove]

Actually the money was not going into Virgin Australia. It was going to the vendors of those shares.

 

[SYD]

Actually the money was not going into Virgin Australia. It was going to the vendors of those shares.

Yep, this isn’t a Capital raising exercise.

Hopefully the next tranches will have an element of capital alongside Bain payback.

 

[RooFlyer]

Hopefully the next tranches will have an element of capital alongside Bain payback.

Okay, so now the question is when will the next trache be up for sale?

They’ve said they don’t need capital and in fact rather strongly said that in the media this morning. Debt would be a better way to go anyway if the balance sheet would support it.

Once the airline gets back into stable operations, my own tip is that there would be a sale of 5-10% to a pension fund somewhere

 

[SYD]

Okay, so now the question is when will the next trache be up for sale?

They’ve said they don’t need capital and in fact rather strongly said that in the media this morning. Debt would be a better way to go anyway if the balance sheet would support it.

Once the airline gets back into stable operations, my own tip is that there would be a sale of 5-10% to a pension fund somewhere

Bain probably don’t want Capital raising because that usually dilutes their share (ie often requires issuing new shares - as well as selling some of their existing interest).

But they can’t just keep saying it’s a well run business - pay us back for doing the hard yards.

 

[RooFlyer]

Snippets in today's AFR that I hadn't heard before. My bolding.

“It’s been a great couple of days,” [after listing] Murphy [Bain Capital's Australian head] tells Chanticleer in Bain’s Sydney office. Bain has agreed not to sell its remaining 36 per cent stake for 12 months, but Murphy says “getting out of the gate strong is just really good”.

Murphy won’t discuss Bain’s returns from Virgin, but back-of-the-envelope calculations put its cash return to this point at about 3.5 times its original investment. If Virgin was able to sell its remaining stake – worth about $1 billion on paper – that return would rise to about 5.5 times.

Makes sense to effectively escrow their remaining holding. Otherwise it would be overhanging the market and price. Not a bad cash return, either!!

Murphy says an IPO was the only real exit option Bain considered for Virgin, and advisers to help it with a float were in place as early as 2021, a full year before Murphy himself felt Virgin was really going to be a success.

May account for the higher than usual fees paid!

But less appreciated is how this deal is seen inside Bain. While Murphy says it is not the firm’s biggest global deal by any stretch, it’s “right up there in the top two or three most complicated deals that we’ve done in our history”.

You can read the reasons why in the article, if you can climb the paywall.

 

[cove]

Yes @RooFlyer I still get the AFR electronically because it isn’t printed in Perth. A good deal for Bain and a pretty good deal for Qatar.

 

[SCM]

Have you read the prospectus?

BTW equity capital is expensive - and dilutionary. Debt capital is cheaper. Equity capital wants a return better than other available options. Debt capital is ultimately tied to the bond rate, almost always a few points lower.

I think VA will have trouble getting much debt from the markets.

What difference will new planes make? Fares won’t be coming down. It’s about improving margin.

I really don’t think the landscape will be changing much in domestic. I don’t believe Virgin is at risk by competitor activity in the short or medium term. The competition have margin targets they have put to market which are much higher compared to today, they will get there by having newer aircraft, not by adding extra capacity or going into fare war mode.

It'll make a big difference in 10 years time, for the same reason it would with any other airline.

 

[RooFlyer]

I think VA will have trouble getting much debt from the markets.

Any particular reasons?

 

[SCM]

Any particular reasons?

Given their financial track record? It hasn't worked for them in the past, no reason to think it will magically start working now.

 

[RooFlyer]

Given their financial track record? It hasn't worked for them in the past, no reason to think it will magically start working now.

The previous track record is irrelevant. They went into administration, they were taken out of administration and since then had been very profitable (against a determined market leader) and a successful IPO means that the 'market' believes in its future too. There is one very successful industry shareholder (vs a bunch of competing industry shareholders before) and a financially very savvy controlling shareholder still. Is the cash flow different now from before? I think it is, isn't it?

So I think there is a 'reason' for things to be different now. BYW have a look at what they say in their prospectus. You can't just make stuff up in a prospectus - its very heavily scrutinised and severe penalties for Directors if they mislead investors.

Heard of Andrew Forrest? One of Australia's richest people? Have a look at his track record with Anaconda Nickel and see if once-a-failures can come back under a different guise.

I just had a look back through the tread about what people thought about the success of the IPO because of how things went before. Ho ho ho.

 

[moa999]

In any event the work before setup a capital structure that doesn't need to be changed for a while.

Most of Virgin's 'debt' is via it's use of operating leases for aircraft.

Since IPO the VGN stock has traded down and is now below $3.10.

 

[SCM]

The previous track record is irrelevant.

You should declare personal bankruptcy and see how challenging it is just to get a basic credit card

Before you say it's different for companies, yeh it's worse, the basic business model for VA is not much different to before, but it's arguably a smaller company now.

The fact that they've had some profits during a time when every airline is hitting record profits is not really saying much, and yes I doubt that will go on forever.

Which brings me back to my point of why it's so important to secure capital now, for investment into future efficiency and growth.