Bank crisis ousts airBaltic minority owners

RIGA - Latvijas Krajbanka offered the state to buy the airBaltic shares that the airline’s private shareholder, Baltijas Aviacijas Sistemas (BAS), had pledged as security against loans, because a debt recovery process had been launched against BAS, reports Nozare.lv. Consulting company Prudentia representative Maris Krastins said at a press conference that these airBaltic shares had been encumbered, and that BAS was not honoring its obligations; he said, for instance, that the company was not presenting its financial reports to the bank.

Transport Ministry State Secretary Anrijs Matiss explained that it was Krajbanka proxies who offered the state to buy out the airBaltic shares. The price was “good” and the state bought them and, in the given circumstances, the state may be considered the “winner,” he said. The price for the shares was low, compared to what it may be after the situation in the airline is stabilized, he added.

Nevertheless, the market price of airBaltic shares has yet to be determined by an independent analysis. According to the airline’s 2010 report, airBaltic operated with a loss of 35 million lats (50 million euros) last year. However, the state, considered a ‘reliable shareholder,’ will ensure higher market prices for the airline’s shares, it is hoped. AirBaltic will become a stronger company now that the state has bought BAS shares in the airline, and more stable, says the government.

The acquisition of BAS shares will stabilize the situation in airBaltic, whereas BAS will still be able to buy the airline’s newly emitted shares, offers Matiss.

Now it is of utmost importance to find a strategic investor for the airline so it could continue to develop successfully, consolidate its positions on the market and make Riga Airport an international air traffic hub, stressed Transport Minister Aivis Ronis. If BAS will be able to participate in increasing the airline’s share capital, the company will be allowed to bid to become an airBaltic strategic investor. New airBaltic shares will be emitted. The state bought existing airBaltic shares, but if new ones are emitted, BAS will be offered to buy some of them.

At the same time, the amount of a new share emission is unclear at the moment. Previously it was planned that 100 million to 107 million lats (152.8 million euros) would be invested in the airline’s share capital, of which 30 million lats has already been invested. Therefore, the new share emission could be worth 70 million to 77 million lats. The precise figure depends on the airBaltic business plan, which the government has already discussed but not yet approved.
Regardless of how much the state invests in airBaltic, the investment will be made from this year’s state budget, not the budget for 2012. Krastins added that the fact BAS was deep in debt was nothing new.

The Transport Ministry reiterates that the shares were acquired in order to protect the interests of the state pursuant to the Cabinet of Ministers’ Nov. 29 decision to accept Krajbanka’s offer to buy out the airBaltic shares. Also, this is to ensure efficient protection of Krajbanka depositor interests, it says.
In making the decision, the government took into consideration risks established by Prudentia and the Transport Ministry regarding the further development of airBaltic and protection of state interests in the wake of the collapse of the Lithuanian bank Snoras and its subsidiary Krajbanka, as these two banks played a crucial role in guaranteeing the solvency of BAS.

However, the agreement that the airline’s shareholders and creditors signed on Oct. 3 to restructure the airline is still valid, and will only expire on Dec. 22. According to an analysis by Prudentia, there is a substantial risk that BAS will not be able to honor this agreement on increasing airBaltic share capital.
The government therefore decided to “make sure” that the financial problems of BAS do not affect the planned investments in airBaltic, and to act proactively in order to protect the interests of the state.

Krajbanka’s income from the sale of airBaltic shares - 224,453 lats - will be used for the payment of state-guaranteed compensation to the bank’s depositors from the Deposit Guarantee Fund. The government’s decision is also in line with the Finance Ministry’s opinion that the takeover of BAS shares will not have a significant effect on the work on the 2012 state budget.

Baltijas Aviacijas Sistemas is assessing its potential course of action to protect the company’s interests regarding the share takeover, BAS shareholder Bertolt Flick says. Flick emphasizes that, so far, BAS has fulfilled all obligations to the Oct. 3 agreement. BAS has also transferred its 14 million lats investment to ensure the airline’s operational activities.

“BAS has always been ready to fulfill the agreement,” stresses Flick. “It is obvious that 200,000 lats is an inadequately low price for 47.2 percent of the airline’s shares. In this case, the government and the Latvijas Krajbanka administrator have acted against the interests of airBaltic and Latvijas Krajbanka shareholders. Due to the Cabinet, the bank was not able to gain much more revenue than [the face value of] those shares that were previously pledged as security.”
With the government’s purchase of the 47.2 percent stake, the state now owns 99.8 percent of the airline.