Lufthansa pitches $6.5b proposal to raise capital

Bloomberg

Deutsche Lufthansa AG will ask shareholders to approve a capital increase that would open a path towards removing the German government as its biggest shareholder.
The proposed 5.5 billion euros ($6.5 billion) in fresh capital would give Europe’s largest airline enough cash
to replace a so-called silent participation, a major part
of Lufthansa’s 9 billion-euro bailout from the state.
Interest rates on the silent participation are due to rise, and the airline might be able to get better financing via a capital raise, the company said in slides accompanying the announcement. Lufthansa could decide to raise less than the full authorisation, and could issue fresh capital in steps.
While Lufthansa’s statement outlines it would only opportunistically issue fresh capital, “it still illustrates the equity dilution risk that keeps us cautious on shares,” said Adrian Yanoshik, an analyst at Berenberg Equity Research.
Lufthansa received the bailout last year after the coronavirus pandemic punctured a decades-long boom in flying. The package saw the German government take a 20% stake and apply strict restrictions on the airline’s M&A activity and executive pay.
Paying back the 5.5 billion euro silent participation — a debt-equity hybrid instrument that doesn’t dilute shareholder voting rights — would leave Lufthansa owing a total of 2 billion euros to the governments of Switzerland, Belgium and Austria, where it operates so-called flag-carrier airlines. The company has already repaid
1 billion euros of the amount loaned by Germany’s state development bank, KfW.
Lufthansa shareholders are set to vote on the proposal at the company’s annual meeting on May 5. A simple majority
is required for passage. The
airline said it hasn’t decided whether to undertake the capital increase.