Thai Air To Raise USD$467 Mln In Rights Issue

August 4, 2010

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Thailand gave the green light to state-controlled Thai Airways to raise USD$467 million through a rights offering to pay off debt and restructure its operations.

The fund-raising plan, about THB5 billion baht less than the flag carrier had requested, is expected to help the airline repay THB29 billion of debt maturing this year and expand services after a drop in market share.

Thai Airways, suffering from falling demand after violent protests in the capital, hopes to transform itself through aggressive restructuring, coupled with launching a budget airline with Singapore's Tiger Airways.

The Finance Ministry will buy THB7.5 billion of the shares on offer to maintain its 51 percent stake, the ministry's Permanent Secretary Sathit Limpongpan told reporters.

"As its performance has improved, the THB15 billion should be enough to expand business and its operations," Sathit said.

A source close to the deal said Thai Airways would sell shares through a rights issue first and then go to general investors if existing shareholders do not buy enough stock. It expects to receive the funds by the end of September.

The price for the offering of up to 1 billion shares is expected near the market level of THB35, which would dilute existing shareholders' stakes by about 25 percent, analysts said. The airline currently has 1.7 billion shares outstanding.

COST-CONTROL PLAN

On Monday, Thai Airways announced plans to form a budget airline with Singapore's Tiger Airways to be called Thai Tiger Airways. The new airline plans to acquire 10 new Airbus A320s in 2011 and 2012.

Thai Air, which aims to cut costs by as much as THB20 billion from 2010-2012, is spending THB5.6 billion to revamp its fleet and upgrade passenger seats and in-flight facilities in a bid to reduce fuel, maintenance and fleet management costs.

It signed a deal to borrow THB8 billion from Siam Commercial Bank in June and is considering a plan to issue bonds as part of its restructuring.

Its financial performance has improved this year despite a drop in passenger numbers in the second quarter due mostly to a slide in tourism following weeks of civil unrest.

(Reuters)