Germany weighs taking part in Lufthansa capital increase

Bloomberg

Germany is leaning towards participating in Deutsche Lufthansa AG’s pending capital increase, according to people familiar with the matter, a move that would boost the airline’s plan to refinance its 9 billion-euro ($11 billion) bailout package.
By subscribing to the rights offering, the government would limit dilution of its 20% shareholding, while increasing its chances of success, said the
people, who asked not to be identified prior to a decision. Lufthansa is working with banks to raise about 3 billion euros in equity, people familiar with the matter said previously.
Europe’s largest carrier received government support last year, after the coronavirus pandemic gutted air travel and damaged the finances of many of the industry’s largest players.
Proceeds from the offering will go towards paying down a
5.5 billion-euro “silent participation” that was part of the bailout, Lufthansa has said. The airline pays interest on the hybrid debt-equity security, with payments set to rise steeply in coming years. Refinancing the bailout package is an immediate priority for the company, executives have said. Lufthansa’s publicly traded debt rose on the Bloomberg report. The company’s 600 million euros of notes due November 2025 were bid around 1 cent on the euro higher at 10 am Frankfurt time. Shares in the airline gained 2.1%.
The plan to raise capital leaves the state with a decision: stand pat, letting its stake shrink before a recovery has been assured, or participate at the risk of overstepping European Union limits on aid to the flag carrier. Lufthansa’s biggest private shareholder, the heirs of billionaire Heinz Hermann Thiele, last month sold down part of the family’s holding. Government
officials have insisted that the state should keep a significant investment in the airline while taxpayer cash is on the line. But the move would likely face opposition from Ireland’s Ryanair Holdings Plc, which has filed EU legal complaints against the bailout package.
A Lufthansa spokesman declined to comment. Aid to Lufthansa has come under scrutiny by the EU before. Der Spiegel reported in March that Margrethe Vestager, the bloc’s antitrust chief, threatened legal action against Germany after the company made an interest payment on a hybrid bond without informing the EU. The terms of EU approval for the bailout also included a ban on dividends.