Strategic investor could enter airBaltic's capital also after IPO - Gauss

RIGA - It is expected that a strategic investor will enter the Latvian national airline airBaltic before the initial public offering (IPO), but the possibility that this may happen after the IPO has not been ruled out, Martin Gauss, President and CEO of airBaltic, told LETA in an interview.

"The fact that negotiations with a strategic investor are taking place before the IPO shows that there is an intention to bring this investor into the company before the IPO. That is the intention, but even then it cannot be said that it will happen before the IPO, it may happen afterwards," Gauss said.

He said that at the moment the company can only disclose that negotiations with the strategic investor are ongoing and involve airBaltic's advisors, management and shareholder, stressing that the outcome will depend on these negotiations.

Gauss also explained that the news of the negotiations with the strategic investor became public after the government meeting held on July 27 this year. However, airBaltic as a company mentioned that it was in talks with a strategic investor in its half-yearly report to investors, without making any other announcements.

Gauss added that airBaltic has no other announcements at the moment, except that airBaltic is talking to a strategic investor before the IPO. There is also no timeframe on when the talks might be concluded.

Commenting on the timing of the planned IPO, Gauss said that the preparations for the IPO are taking place independently of the negotiations with the potential strategic investor and the company has been preparing for the IPO since November last year.

"A lot of things have now been made public, but that was not our intention, and now we are halfway into a public discussion about a process that has not yet been decided. The IPO announcement is a decision that has to be taken by the shareholders and then it becomes public. But I can confirm that we are doing everything we can to make that decision," he said.

Gauss said the company is moving towards an IPO in the second half of this year or in 2025. He also explained that all the preparatory work had to be done first, including one of the things that had to be done was to reduce the share capital.

"Publicly it became a big thing, but technically it is actually a small thing because it does not change the value of the company, but technically in order to be able to list on the stock exchange, the shareholding had to be reduced. Then you need a story. For example, when Virsi-A, Madara Cosmetics, Ignitis or the Port of Tallinn went to the stock exchange, you sell a story to investors so that they say: yes, I want to be a shareholder in these companies. In our case, the story is an airline that will have 100 planes in 2030," said Gauss.

In this way, airBaltic presents potential investors with numbers and plans to see if they would be willing to invest. Gauss also said that it is important whether investors who say they would like to buy shares in the IPO offer as much as expected for them.

"If they say we like this story and we think it's worth EUR 20 million, for example, you will say thank you, but our shareholders cannot accept such an offer. Then the IPO simply won't happen because the investors haven't valued your ideas. So when we get to the point where all the technical issues are resolved, we still have to see if the shareholders accept the valuation that the investors have given," said Gauss.

He also stressed that the IPO depends on whether the financial markets are right to start listing the shares on the stock exchange. If an economic crisis were to start and share prices were to fall, then it would not be the right time, so timing is also a criterion for IPOs.

He summarized that airBaltic needs to prepare, properly value the company and determine the right time on the market for the IPO, as well as the situation on the global markets, which are affected by central bank decisions on interest rate changes and will certainly be affected by the US presidential elections.

"If we were a local egg producer or a local petrol station chain and went to the local stock exchange, we would probably not be affected by what happens in the US, but airBaltic operates globally and we have to look at what is happening globally because we generate 70 percent of our revenues outside Latvia. The global economy affects us much more than any other company in the country," Gauss stressed.

As reported, German national airline Lufthansa is considering taking a stake in Latvian national airline airBaltic ahead of the Latvian state-owned carrier’s proposed initial public offering (IPO), Bloomberg news agency reported, citing to people familiar with the matter.

Talks are at an early stage and no decision about an investment has been made, said the people, asking not to be identified discussing confidential deliberations.

The government agreed at a meeting on August 30 that the state should retain at least 25 percent plus one share in the national airline airBaltic's share capital after the IPO.

Transport Minister Kaspars Briskens (Progressives) explained that the state is currently considering sale of a minority stake in airBaltic before the IPO or going into the IPO, as well as possible participation in the IPO. "One condition that the government agreed is that the state should retain at least 25 percent plus one share after the IPO, which means having veto powers.

The share capital of airBaltic after the reduction will be EUR 25.179 million, consisting of 251,795,252 dematerialized shares with a nominal value of EUR 0.1 per share. Each share will entitle the holder to one vote at the company's shareholders' meeting, a dividend and a liquidation allowance.

In 2023, airBaltic's audited turnover was EUR 664.289 million, up 33.2 percent on 2022, and the company made a profit of EUR 33.852 million, compared to a loss the year before.

The Latvian state owns 97.97 percent of airBaltic's shares, while the financial investor, Danish businessman Lars Thuesen's Aircraft Leasing 1, owns 2.03 percent.