Etihad faces loss of stake, board seat without Virgin commitment

Etihad Airways, which owns 21.8 per cent of Virgin, has one more day to join an $852m capital raising.

Etihad chief executive James Hogan and Virgin Australia chief executive John Borghetti.

Etihad Airways’ shareholding in Virgin Australia could be halved and its board seat taken away should it fail to stump up cash in the carrier’s $852 million capital raising, which closes on Wednesday.

The Gulf carrier, which owns 21.8 per cent of Virgin, has until 5pm on Wednesday to take up the offer, in which it could fork out as much as $186m to maintain its stake in the airline.

But should it choose not to participate, the airline’s holding in Virgin would be diluted to about 11 per cent. If Etihad fails to retain its shareholding at 19.9 per cent, it could also lose its board representation at Virgin.

According to Virgin’s nominee director protocol, which sets out the rules of electing and retiring board members, a shareholder whose holding falls under 19.9 per cent must request its board nominee to retire immediately.

However, it is understood the protocol also allows Virgin chairwoman Elizabeth Bryan to keep directors on if such shareholders continue to have strategic value to the company.

The $852m raising will be ­issued as a one-for-one non-­renounceable offer at 21c a share.

Virgin’s other major shareholders — Singapore Airlines, Virgin Group, HNA and Nanshan Group — have committed to the raising. But Etihad has remained tight-lipped about its intention.

Last week, Virgin chief John Borghetti said he had received no indication from Etihad if it would take part in the raising.

Etihad did not respond to questions yesterday but a spokesman last week said it remained a long-term strategic investor and was committed to remaining as a shareholder.

“Our comprehensive 10-year commercial agreement is further evidence of our confidence in and support for Virgin Australia, and our commitment to the airline and Australia,” the spokesman said.

“We will continue to review our option to take up the pro-rata entitle­ment.”

Singapore Airlines is likely to gobble up any shares that Etihad chooses not to buy. It has said it would spend an additional $US200m ($266m) to lift its stake to a maximum of 25.9 per cent.