Norwegian Air Gets Lifeline With Help From Norway's Richest

(Bloomberg) -- Norwegian Air Shuttle ASA gained the backing of Norway’s richest man, providing some stability to the struggling discount carrier as it searches for a new suitor following IAG SA’s decision to abandon its eight-month pursuit.

The shares fell the most on record after Norwegian said Tuesday it’s raising 3 billion kroner ($353 million) in a rights issue underwritten by investors including shipping magnate John Fredriksen to avoid breaching financial covenants. While the stock declined, the bonds advanced as investors welcomed the cash infusion, which eases concerns over Norwegian’s viability.

“I’ve known John Fredriksen for a long time, and we even have a CFO who has worked for Fredriksen,” Chief Executive Officer Bjorn Kjos told reporters in Oslo. “We’re very happy to have the Fredriksen group as a part of that guarantee consortium.”

Norwegian found cover just days after British Airways parent IAG said it had broken off talks on a potential takeover. The discounter said in a statement it’s no longer in active discussions with suitors, freeing the company to address its balance sheet. Kjos indicated Norwegian is still open to a potential buyout.

Asked about Deutsche Lufthansa AG, which held talks with Norwegian last year, and Ryanair Holdings Plc, which has denied speculation of its interest, Kjos declined to discuss specifics. “I can’t say who, I can only say that more than one interested party has contacted us,” he said, while praising IAG as “a very good company.”

IAG said last week that it didn’t intend to bid on Norwegian, sending the smaller carrier’s shares reeling. While two earlier IAG proposals didn’t amount to an official offer to Norwegian shareholders, it doesn’t matter under local securities laws, according to a spokesman for the Oslo stock exchange. Even if it had made a formal offer, unlike in some other jurisdictions, IAG wouldn’t be precluded for any period of time from coming back with a new proposal, the spokesman said.

Norwegian Air Gets Lifeline With Help From Norway's Richest

IAG and Lufthansa declined to comment on any interest in Norwegian, while Ryanair didn’t respond to requests for comment.

Shares of Norwegian Air were trading 12 percent lower as of 2:03 p.m. after dropping as much as 30 percent earlier in Oslo, near the company’s headquarters in Fornebu, Norway. The carrier’s bonds recovered losses recorded last week after IAG pulled out. Its 250 million euros of notes due December gained 14 cents on the euro to 98 cents, according to data compiled by Bloomberg.

IAG’s decision to walk away from the talks had spurred concerns about Norwegian’s finances, with analysts widely predicting that a capital increase was likely -- though the rights issue is bigger than many had forecast. About 2.4 billion kroner of the total will be guaranteed by DNB Bank, Danske Bank and Fredriksen, who last year pulled off the painful restructuring of his offshore drilling company Seadrill Ltd.

Fredriksen, 74, has said he’s looking at new opportunities as he continues to diversify his wealth. Bloomberg estimates his net worth at $7.9 billion, with almost half consisting of cash and other assets. The Norwegian-born Cypriot citizen made his fortune in shipping in the 1970s and 1980s.

At the same time as he ventured into offshore rigs in 2005, he invested in salmon farming, a move that proved especially efficient in balancing his portfolio when the oil industry slumped a decade later. An investment in Norwegian would be his first in airlines.

Kjos, who rejected two previous offers from IAG, has been struggling to weather a cash crunch. His company is awash with capacity after one of the fastest growth spurts in aviation history, at a time when a European fare war has depressed revenue. Norwegian reiterated in its statement Tuesday that the focus now will be on profitability rather than expansion.

Preliminary figures indicate a loss of 3.8 billion kroner before interest and tax in 2018, with cash and cash equivalents of 1.9 billion kroner, according to the company, which brought forward its fourth-quarter earnings release to Feb. 7.

Norwegian must have a book equity value higher than 1.5 billion kroner and more than 500 million kroner of liquidity to comply with bond covenants, according to a previous presentation.

The company said it aims to reduce the level of spending through aircraft sales and the postponement of some plane deliveries, and clawing back money from Rolls-Royce Holdings Plc as compensation for having to scrap some flights due to engine issues.

The carrier has already announced base and route cuts this year, signaling the extent of its profitability issues, something that may have deterred IAG. Kjos said on Tuesday that he expects Norwegian to be profitable this year.

dders may also be put off by a profit warning at Ryanair Holdings Plc, Europe’s biggest airline, and uncertainty about how Brexit will affect flights and market developments as the U.K., a major market for Norwegian.

Existing shareholders including Kjos and Chairman Bjorn Halvor Kise will contribute to the rights offer.

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