Virgin Blue To Raise USD$190 Mln

Virgin Blue, Australia's second-largest airline, is looking to raise AUD$231.4 million ($USD190 million) in a heavily discounted share sale after warning on Monday it was likely to post a full-year loss.

The airline said the money would help bolster its capital position after it suffered the worst operating environment in its 10 year history over the last 12 months, with the global industry suffering from a slump in business and leisure passengers.

Despite the downturn it has invested heavily on expansion this year, flying to the United States and adding new domestic routes while cutting capacity on existing routes.

"These are the worst of times we've had in a long time," chief executive Brett Godfrey told reporters.

He said the size of the capital raising assumed dire market conditions would persist into next year. The money would also strengthen Virgin Blue against any new competition and ahead of a short-haul fleet renewal starting in 2011, he added.

Virgin Blue needs to replace 12 Boeing 737s as their leases expire in 2011 and another dozen planes in 2012.

"Now's a good time to horde cash when you can," Godfrey said.

Virgin Blue said it would not pay a final dividend this year to help conserve cash.

It is set to post a loss of AUD$160 million - AUD$165 million for the year to June 2009, down from a net profit of AUD$98 million a year ago.

It said it expected to break even in fiscal 2010, which one analyst, who declined to be named, said could turn out to be a conservative forecast if Virgin Blue was able to maintain the stronger yields it had achieved in July into 2010.

Godfrey, who has led the company from its launch, said he would step down in 2010 as he felt he had given the airline enough "blood, sweat and tears" over the past decade.

The share sale includes a placement to institutions to raise AUD$21 million and a 1-for-1 non-renounceable entitlement offer to raise about AUD$210.4 million, both priced at 20 cents a share compared with Virgin Blue's last trade at 29 cents.

Analysts said the offer price was attractive, at nearly half the price-to-earnings multiple of bigger rival Qantas Airways, based on forecast profits for 2011.

"If you're a holder, it's a great price," said John Grace, a portfolio manager at Ausbil Dexia, which is not an existing shareholder. But he added that Ausbil was unlikely to buy into the placement as it was not putting money into airlines at all.

The offer is fully underwritten by JP Morgan and Credit Suisse.

Richard Branson's Virgin Group has agreed to invest up to AUD$80 million, taking up its full entitlement of 25.5 percent plus 35 percent of the share placement and sub-underwriting 20 percent of the retail component of the entitlement offer.

If retail investors do not take up their entitlements, Virgin Group's stake in Virgin Blue would increase to 30.2 percent.