Travel agency Flight Centre (ASX: FLT) is set for a significant dilution of ownership as it looks to raise $700 million in extra capital.
With total transaction value (TTV) sitting at 20-30 per cent of normal levels in March and further declines expected for the coming weeks due to travel restrictions, the Brisbane-based company is prepared to almost double the amount of shares on offer to stay afloat.
Flight Centre plans to issue around 97.2 million new shares at at $7.20 each, representing a 27.3 per cent discount to the last traded price of $9.91 on 19 March before the shares entered a trading halt.
This compares to 101.14 million shares currently tied up in the company.
Shares have fallen from $39.84 on 25 February, and were trading as high as $65.30 in late July 2018.
The capital raising is fully underwritten by Macquarie Capital and UBS, and will include a $282m institutional placement as well as a $419 million 1 for 1.74 accelerated entitlement offer.
Flight Centre has also secured an extra $200 million in banking facilities, bringing the total up to $450 million.
As revenue streams dry up while the world hunkers down against the Covid-19 pandemic, Flight Centre expects its cost reduction measures - including standing down 6,000 staff and closing half its shops internationally - will result in annualised savings of $1.9 billion.
This translates to anticipated monthly operating cash costs of approximately $65 million, which will be implemented by the end of July. But one-off costs of $210 million will likely be spent to execute the plan.
"Flight Centre has moved to significantly reduce occupancy costs of the remaining retail network, by renegotiating rental agreements with landlords, discussions to date have been positive as FLT has pursued cost savings including rent-free periods and more flexible trading hours," the company said, adding it was also exploring the sale of its Melbourne head office site.
"FLT welcomes stimulus packages that governments throughout the world are delivering to help businesses retain as many workers as possible and overcome the extraordinary trading conditions they are facing.
"Flight Centre welcomes the Federal Government's JobKeeper initiative. The impact of the initiative is still being assessed; however, Flight Centre believes it will receive material support, both in terms of payments and an ability to retain more staff."
FLT says its package of initiatives provides approximately $2.3 billion of liquidity.
Despite travel restrictions and TTV declines, Flight Centre continues to generate some revenues through long-term travel bookings, intra-state and intra-region travel, repatriation services, essential services, government work, aircraft charters and alternative revenue streams.
The company has also continued to win and retain corporate accounts, and has secured contracts with annual spends in the order of $250 million during March 2020.
Managing director Graham Turner (pictured) says government-enforced restrictions are widespread globally and now typically include full bans on international travel, domestic border closures and the forced closures of shops that are not deemed to be providing essential services.
"Together, they mean that our people are currently processing a fraction of the normal volumes at this time of year and the vast proportion of work previously carried out by our people has stopped," he says.
"It is - without question - the most challenging period we have encountered in over 30 years in business and it is inevitable that some businesses across our industry will fail, given the significant loss of revenue that they will be experiencing now and for at least the next few months.
"With this funding in place and additional liquidity, we are in a much stronger position and are well placed to weather a prolonged downturn, which currently seems the likely scenario, and to then take advantage of the significant opportunities that will arise once conditions normalise."
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Updated at 9:45am AEST on 6 April 2020.
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