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Air NZ sells stake in Virgin Australia to Chinese-based Nanshan Group

Friday 10th June 2016

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Air New Zealand, the country's national carrier, sold a 19.98 percent stake in Virgin Australia to Chinese company Nanshan Group, which owns Qingdao Airlines, and said it's considering options for its remaining 6 percent holding in Australia's second-largest domestic airline.

The Auckland-based carrier said it will sell the stake in Virgin Australia at 33 Australian cents per share, a premium to Virgin's last traded price on the ASX of 28 Australian cents. Last month, Virgin Australia issued new shares at 30 Australian cents apiece to a unit of HNA Aviation Group, the largest private operator of airlines in China, giving it a 13 percent stake, and HNA said it intends to increase its shareholding over time to 19.99 percent.

Air New Zealand announced in March that it was considering selling its stake in Virgin Australia and had hired First NZ Capital and Credit Suisse to advise on its options. The Kiwi carrier has spent an estimated A$373 million building up and maintaining the Virgin stake since 2011 but faces a considerable loss on that investment. Virgin's share price dropped early this month after brokerage Credit Suisse indicated it could require an A$1 billion equity raising, double previous expectations, to reduce debt to reasonable levels after it posted a profit warning.

"We believe Nanshan Group will be a very strong, positive and complimentary shareholder for Virgin Australia," Air New Zealand chairman Tony Carter said in a statement. "The sale will allow Air New Zealand to focus on its own growth opportunities, while still continuing its long-standing alliance with Virgin Australia on the trans-Tasman network”. 

Air New Zealand and Virgin formalised an alliance in 2010 with codesharing agreements on trans-Tasman and connecting flights and reciprocal frequent flyer and lounge access deals. The tie-up was first mooted in response to Qantas Airways' two-airline strategy where its low-fare Jetstar unit operates domestically in New Zealand and links to longer-haul flights on its parent.

Nanshan Group is a large, privately owned Chinese conglomerate with interests across a diverse range of industries including its own emerging airline, Qingdao Airlines, launched in April 2014. 

The sale is subject to and will take place after receipt of Nanshan Group regulatory approvals from Chinese authorities.

Keeping the stake below 20 percent prevents the triggering of regulatory approvals required under Australian law.

Air New Zealand shares last traded at $2.17, and have dropped 27 percent this year. The stock is rated an average 'hold' according to analyst estimates compiled by Reuters.

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