Qantas rights issue in strife

SYDNEY - Qantas Airways' bid to raise A$200 million ($233 million) from retail investors has been thrown into question, as its shares languished below the issue price yesterday, the opening day of its offer.

Qantas hopes to raise the money through a rights issue at A$4.20 a share, but analysts say retail investors will be thinking twice about paying that when the company's shares are trading around seven-month lows.

The airline's shares fell 7Ac in early trade yesterday to $3.92 - the seven-month low they touched on Friday - before nudging back to close at $4.04.

"I suspect the majority of investors would not find it particularly attractive to buy something at A$4.20 which they can buy on the market at A$4," said Troy Angus, equity analyst at Sagitta Wealth Management.

"They might struggle to get away the retail offer component at these levels."

The 8.2-for-one retail offer closes on September 27.

The airline plans to use some of the money to pay for any stake it may buy in Air New Zealand, but most of it will be used for new aircraft.

Qantas had no trouble raising the first A$600 million ($699 million) through an oversubscribed institutional offer at A$4.20 a share two weeks ago. At that time its shares were trading at $4.69.

Since then the price has been hit by concerns about rising oil prices and the prospect of military action in Iraq.

"They're half hedged [against rising fuel prices] but I think you'll find investors are looking for more defensive stocks at the moment.

"A company which is leveraged to oil price changes and the immediate impact of a Gulf War round two is not good," said Angus.

Speculation that Singapore Airlines is planning an assault on the Australian market has also taken its toll on Qantas.

The airline has also been the subject of further claims that it already has a deal with Air New Zealand.

The Australian Financial Review reported yesterday that an agreement had been struck for Qantas to buy 25 per cent of Air New Zealand for about 50NZc a share.

Air New Zealand said it had not received a proposal from Qantas.

"There's no proposal on the table as yet," said Air New Zealand spokeswoman Rosie Paul.

"There's been no agreement. There has been nothing signed."

Qantas spokeswoman Melissa Thomson said she could not immediately comment.

Shares in Air New Zealand, 82 per cent owned by the Government, closed yesterday at 55c, down 2c.

A deal with Air New Zealand may prompt Qantas to leave the oneworld alliance of airlines and join the rival Star Alliance, of which Air New Zealand is a member, the Financial Review reported.

British Airways, which owns 21 per cent of Qantas, may have met Singapore Airlines to discuss selling its Qantas stake, the newspaper said. British Airways is part of the oneworld alliance while Singapore Airlines is a member of the Star Alliance. The Star Alliance lost its Australian member when Ansett collapsed a year ago.

Analysts say the absence of a feeder airline in Australia is costing Singapore Airlines hundreds of millions of dollars a year, adding to speculation that Singapore Airlines may set up operations in Australia.

A report in the Straits Times newspaper said Singapore was discussing a deal with Australia's newest airline, Regional Express.

An SIA spokesman said only that it would "rule nothing in or out. We are leaving our options open with regards to the Australian domestic market".

- AGENCIES