March 20, 2020 / 10:14 AM / 12 days ago

Norwegian Air shares rise after state offers credit guarantees

OSLO, March 20 (Reuters) - Shares in budget airline Norwegian Air rose on Friday after Norway’s government offered to provide the company with credit guarantees worth up to 3 billion crowns ($275 million) under certain conditions to weather the coronavirus crisis.

The stock was up 12.7% at 0934 GMT, after having surged by over 20%. However shares in the carrier, which has grounded most of its aircraft and is temporarily laying off 90% of staff due to the virus pandemic, remain down about 65% this year.

Norwegian Air would get credit guarantees worth 270 million crowns from the government, provided that it could convince commercial lenders to supply a further 30 million, for an initial guarantee of 300 million, the government said.

To receive the full 3 billion, the company must first persuade creditors to postpone instalment payments and forego interest payments for three months, and it must also boost its equity.

Other airlines in the shattered global aviation sector are also counting the cost of government support as politicians in the United States and New Zealand set out conditions for bailouts needed to absorb the shock of the pandemic.

Such conditions include provisions that loans may convert to government equity stakes, with Air New Zealand’s bailout dependent on suspending its dividend and paying interest rates of 7% to 9%. U.S. airlines cannot increase executive pay or provide “golden parachutes” for two years.

Norwegian Air said late on Thursday it welcomed the government’s offer to provide liquidity but said it was too early to comment on the specific conditions set.

DNB Markets analyst Ole Martin Westgaard said in a note the package was likely too small, calculating that it would only cover the total cost of grounding all Norwegian Air aircraft for one-and-a-half months.

“We are doubtful the company will be able to attract any interest from a commercial bank at interest rates that would make sense,” Westgaard said.

He added that he believed that the requirement to get creditors onboard would be more or less impossible to deliver given the complex financing structure, and noted that in the third phase, the firm would need to raise 2.7 billion crowns of equity compared with its current market cap of 1.8 billion.

“We believe this will prove challenging – if not impossible – given current market conditions, Westgaard said.

$1 = 10.8969 Norwegian crowns Reporting by Victoria Klesty; Editing by Pravin Char

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