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All Nippon Airways said it was looking to invest in another Asian carrier as it unveiled plans to raise up to Y211bn ($2.6bn) in a new share issue that would be the largest by a Japanese corporation so far this year.
ANA’s fundraising will be followed this year by an initial public offering by Japan Airlines, which is expected to raise as much as Y600bn and will test the market’s appetite for new paper.
The announcement of its new share issue was widely expected but nevertheless jolted the market, leaving ANA’s share price 14 per cent down on the day at Y193.
ANA said it is raising the funds to pay for new planes and prepare for the possibility of taking a majority stake in an airline with access to Asian markets.
The company sees a major opportunity for growth, including through M&A, amid ongoing deregulation in the airline industry.
“We want to be prepared financially to be able to swiftly conduct an equity investment, merger or acquisition when we find the best partner for ANA,” it said.
In particular, ANA is keen to form a tie-up that will allow it to take advantage of growth in Asian markets.
While it does not have any particular target in mind, the company has been investigating the possibility of a tie-up or investment that will provide it with access to Asian airports, it said.
ANA also made the unusual statement that it did not intend to restrict its investment to a minority stake.
“We believe the trend toward deregulation and free skies will continue and if regulations change, we think there is a possibility of buying a majority stake in another Asian airline,” the ANA representative said. It said the candidates for investment included both low-cost carriers and full-service carriers.
The fundraising will also be aimed at strengthening its balance sheet and paying for new planes, including dozens of 787 Dreamliners it has ordered, ANA said.
While ANA is not excessively geared, its net debt to equity of 1.6 times as of March was substantially higher than JAL’s 0.3 times, said Nicholas Cunningham, airline analyst at Macquarie in Tokyo.
The airline expects to expand international seat kilometres by 22 per cent in the two years to March 2014.
Meanwhile, the domestic market is poised to expand because slots will be substantially increased in the coming years at both Haneda and Narita International Airports, the gateways to Tokyo.
“It’s a big business chance so we have to introduce new equipment and grow,” ANA said.