Update: Tiger Airways to divest Aussie carrier for A$1, raise S$234m in rights issue

TIGER Airways is planning to stem further losses with a divestment of its Australian carrier, and a plan to raise up to S$234 million in a rights issue to strengthen its balance sheet.

On Thursday, it was announced that Virgin Australia plans to buy the remaining 40 per cent of loss-making low-cost carrier Tigerair Australia from Singapore Airlines (SIA) for A$1 (S$1.1) and fly the airline internationally.

The transaction will see the carrier become a wholly owned subsidiary of Virgin Australia, which already owns a 60 per cent stake, purchased last year.

Virgin Australia will keep Tigerair's low-cost business model and the separate brand.

"Given the ongoing subdued consumer demand in the Australian domestic market, the growth of the Tigerair Australia domestic fleet is likely to be reduced.

"Under this proposed transaction, we will benefit from the economies of scale and achieve profitability ahead of schedule by the end of 2016, by leveraging on the resources of the wider Virgin Australia Group," CEO John Borghetti said.

Virgin Australia will also secure the brand rights of Tigerair Australia to a number of short-haul international destinations that it says will provide new growth opportunities.

Virgin Australia anticipates that the deal will be completed by the end of this year.

On a pro forma basis, assuming that the proposed sale had been completed on Sept 30, 2014, Tigerair would have made an estimated net loss of S$60.1 million from it.

To strengthen its balance sheet, Tigerair also plans to raise up to S$234 million in a renounceable non-underwritten 85-for-100 rights issue.

It plans to issue 1.2 billion new shares at S$0.20 per rights share, representing a 39 per cent discount to the one-day volume weighted average price of S$0.33 per share on Thursday.

Tigerair's largest shareholder, SIA, has undertaken to subscribe for its pro-rata entitlement as well as excess rights shares, up to a total of S$140 million.

It will also convert its perpetual convertible capital securities (PCCS) into shares, which will raise SIA's stake in Tigerair from 40 per cent to about 55 per cent before the rights Issue.

Although this effectively makes Tigerair a subsidiary of SIA, the latter will not be making a general offer, as Tigerair's minority shareholders had approved a whitewash resolution in March last year to waive their rights to receive a general offer as a result of the PCCS conversion.

The rights issue is expected to be completed in January 2015.