Shares in Anglo-German tour operator TUI (TUI) tumbled 6.7% to 370p after it announced plans to raise up to €400 million in a convertible bond offering, as analysts warned it would add only one more months’ worth of liquidity and called the plan ‘insufficient’.
The company is set to launch a convertible bond offering of €350 million, initially with a coupon between 4.5% and 5% a year and said there will be an option to increase the issuance volume to €400 million.
The bonds will be convertible into new and/or existing no-par value ordinary registered shares of TUI. The initial conversion price will be set at a conversion premium between 25% and 30% above the reference share price, being the volume weighted average price of its Frankfurt-listed shares between launch and pricing of the bond offering on 9 April.
TUI said the proceeds will be used to ‘further improve its liquidity position as the Covid-19 crisis continues and subsequently for the repayment of existing financing instruments.’
‘VERY SHORT-TERM AND INSUFFICIENT’
Despite TUI moving to bolster its liquidity, analysts have warned the bond offering might not be enough, particularly given it had liquidity of €1.6 billion at the end of March, a monthly cash burn between €250 million and €300 million and faces an uncertain summer ahead.
Jefferies analyst Becky Lane said, ‘With still low liquidity given refund risk, high debt and significant maturities in 2022, this is a very short-term and insufficient liquidity fix, in our opinion. We estimate €350 million extra liquidity will only add just over one month’s liquidity endurance, before paying refunds.’
TUI's borrowings are a growing problem for the firm as its net debt ballooned in 2020 and now stands at over €7 billion, putting the company on an uncomfortably high net debt to earnings ratio of six times, well ahead of the three times that is generally considered sustainable.
The firm has been bailed out three times by the German government since the pandemic started and has received over €5 billion in state support. A sizeable chunk of its debt, including some state loans, will need to be repaid by July next year.
Regarding TUI’s latest plan to raise cash, AJ Bell financial analyst Danni Hewson concurred with Lane’s view, and said TUI’s plans secure up to €400 million through issuing bonds is like ‘giving someone an ice cream on a hot day’, as that amount of money ‘will soon been gobbled up given it is probably about one month’s cash burn for the company.’
