IndiGo Airlines parent InterGlobe Aviation is aiming to raise as much as Rp39.5 billion ($617 million) on Friday by placing shares with institutional investors in what is set to become Asia's biggest-ever share sale by a budget airline less than two years after the company floated.
Indicative terms show the operator of India’s largest low-cost carrier, which needs to sell the shares to meet India's minimum free-float requirements, will offer up to 22.4 million new shares plus another 11.2 million shares held by the firm's senior executives.
In total, the shares on sale equate to about 10% of InterGlobe Aviation’s enlarged share capital, which will enable it to fulfil the 25% minimum public holding threshold for companies listed in India. Currently co-founders Rahul Bhatia and Rakesh Gangwal own about 85% of the company.
Despite selling a smaller stake than it did with its initial public offering, when it divested a 15% stake, InterGlobe’s upcoming share placement will be the largest of its kind by an Asian budget airline company – beating its own $470 million IPO.
That is largely because InterGlobe's share price has risen by 57% from its Rp765 listing price, mostly since March this year, giving it a market capitalisation of $6.8 billion and making it more valuable than some of Asia’s more traditional airlines such as Thai Airways and Garuda Indonesia.
Taking on the big boy
InterGlobe's ambition to become India’s top airline company is underlined by its desire to acquire the international operations of Air India, the country’s state-owned and debt-laden flag carrier. In a letter of intent to the Ministry of Civil Aviation in June, Haryana-headquartered InterGlobe said it would make a good owner of Air India’s international operations, citing its strong track record of profitability and solid balance sheet.
Although a formal sale process has yet to be launched, privatising Air India would enable New Delhi to meet its ambitious divestment target for the current financial year, steer the airline back to profit, and tackle its heavy debt load. The airline has booked a loss in nine of the past 10 years and is currently sitting on over $8 billion of long-term debt – more than twice its revenue of $3.2 billion in the 2015/16 fiscal year.
InterGlobe, which has focused on domestic and short-haul international operations since IndiGo Airlines was founded in 2006, said a potential Air India acquisition would catapult it into the long-haul international market and provide it access to additional routes and airport slots.
Should the acquisition goes ahead, it will be the first case in which a budget airline takes over a national carrier – clearly something that could whet the appetite of prospective investors. The combination would create an industry mammoth that commands over half of India’s aviation market.
According to the civil aviation ministry, IndiGo Airlines had a 41.4% market share as of the end of April while Air India had 12.9%.
As such, the upcoming share sale could be seen as a good opportunity for investors to position themselves before any acquisition materialises. However, that could yet take up to a year.
For its imminent share placement, InterGlobe has set a price band of Rp1,125 to Rp1,175 per share, representing a discount of 2% to 6.1% over its Wednesday close at Rp1,198.5. The institutional bookbuild will run until September 19 and the shares will be traded the day after.
The company said it will use the proceeds for aircraft and equipment purchase, debt repayment as well as general corporate purposes.
The joint bookrunning lead managers of the share placement are Citigroup, JP Morgan and Morgan Stanley.
