Holidays company TUI (TUI) is to raise €1.1 billion (£937 million) in a rights issue to cut debt amassed during the Coronavirus pandemic as 2022 bookings surge.
The Germany-based business said in a statement that it is issuing just over 523.5 million new shares priced at €2.15 each, which TUI claims will represent a 35.1% discount to the theoretical ex-rights price.
When converted to sterling, that works out at 183p for the new shares, effectively a 44% discount to last night’s 326.8p closing price.
Shareholders will be entitled to 10 new shares for every 21 already held, and 32% stake owner the Mordashov family has backed the cash call, agreeing to subscribe to all its rights.
The remainder of the capital increase is to be secured by an underwritten banking syndicate, TUI said.
WHAT IS A RIGHTS ISSUE?
A rights issue gives existing shareholders the right to buy new shares in a company in proportion to the size of their existing shareholding. New shares are usually offered at a discount to the prevailing share price to lure investors to support the fundraise.
The discounted price of the new shares means that after the new shares are paid for and start trading on the stock exchange the share price of the company will be lower, with the company’s new market valuation spread across significantly more stock.
The fresh cash will temporarily bolster TUI’s cash from €3.4 billion to €4.5 billion, although the company plans to repay a large chunk of its debts. TUI has taken on loans of over €4 billion and been bailed out multiple times by the German government after Covid-19 stopped holidays for much of last year and the beginning of this year.
TUI raised around €544 million (roughly £463 million) in January this year in a similarly deeply discounted rights issue.
SUMMER 2022 SURGE
In an accompanying trading update ahead of results for the year to 30 September 2021, TUI said bookings had been boosted by pent-up demand, lighter testing rules and growing confidence among holiday makers that departures would take place.
Bookings for summer 2021 totalled 5.2 million, up 1.1 million from its third quarter. Bookings in Germany and the Netherlands in recent weeks are said to be running well head of summer 2019.
More than 2.6 million customers took a TUI holiday during July and August 2021, up from 1.3 million in the same months last year. TUI said it operated a capacity of 42% for July and 48% for August.
Total winter bookings are now at 54% of 2018/19 levels with average selling prices 14% higher. UK bookings for the coming winter season were said to be ‘trending strongly’ since the Government’s recent easing of a number of travel restrictions.
There is now increasing hope that bookings for summer 2022 will reflect strong ‘pent-up demand’. Overall summer 2022 bookings are up 54% and are selling for an average 15% more than summer 2019.
‘With the strong indications of pent-up demand, we believe summer 2022 volumes will likely recover close to normalised levels of summer 2019,’ TUI said.
IS THE CASH CALL LARGE ENOUGH?
Market experts have questioned whether TUI is raising enough money, with investors likely to take a dim view if they are asked for further funding in the months ahead.
‘Chief executive Fritz Joussen talks about taking a significant step closer to repaying its debts with the government, but it could risk alienating shareholders if it has to return once more with its hand out,’ said Russ Mould, AJ Bell’s investment director.
‘At least the company is able to point to a recovery in bookings as restrictions are eased, although given lingering uncertainty associated with the pandemic, guidance for the 2022 summer season to return to pre-pandemic levels may be treated with understandable caution.’
TUI shares were left virtually unchanged in morning trade on Wednesday, at 326.6p.
DISCLAIMER: AJ Bell referenced in this article is the owner of Shares magazine. The author (Steven Frazer) and editor (Daniel Coatsworth) own shares in AJ Bell.
