Singapore Airlines lifts stake in Virgin Australia

Singapore Airlines has seized on the ownership uncertainty surrounding Virgin by upping its stake in the airline.

Singapore Airlines has been actively reviewing its stake in Virgin. Pic: AAP

Singapore Airlines has seized on the ownership uncertainty surrounding Virgin Australia by upping its stake in the airline just a week after Air New Zealand signalled its intention sell out of the company.

In an announcement to the Singapore Stock Exchange overnight, the Singaporean airline — which is the third-largest shareholder in Virgin (VAH) behind Air NZ with 25.9 per cent and Etihad Airways with 25.1 per cent — increased its stake from 22.91 per cent to 23.11 per cent.

The increase came as Singapore Airlines settled a series of equity swaps at a cost of about $3.2 million, or 46.72¢ a share, which was a significant premium to Virgin’s closing price of 33.5c on Wednesday.

In a note to clients this morning, Citi Credit Sector Specialist Anthony Ip said it was “interesting” that Singapore Airlines chose to physically settle the swap, rather than cash settle.

“Physically settling obviously incrementally increases Singapore Airline’s shareholding in Virgin Australia, but it also increases Singapore’s participation in any future equity injection/shareholder financial support (assuming no dilution),” he said.

“So if one wanted to draw a ‘loose’ conclusion from last night’s announcement, it’s that Singapore does not seem to have objections to injecting further cash into Virgin.”

Singapore Airlines has been actively reviewing its stake in Virgin ever since the airline started showing signs of its improving financial position last year.

The airline has Foreign Investment Review Board approval to increase its stake up to 25.9 per cent.

The increase of Singapore Airline’s stake in Virgin comes a week after Air New Zealand announced a review into its 25.9 per cent stake in the Australian airline.

The potential sell down of Air NZ’s stake has set the scene for a takeover battle between Virgin’s other major shareholders in Etihad and Singapore Airlines.

According to veteran aviation analyst and Centre for Asia Pacific Aviation boss Peter Harbison, it is Singapore that has more to lose by letting competing Asian airlines swoop on Air NZ’s holding and take a foothold in the Australian market.

“This is a wonderful opportunity for Singapore Airlines to buy in, especially with the dual ownership structure Virgin Australia now has. And really, they should be desperate to buy it, probably up to 100 per cent for the domestic airline,” Mr Harbison recently told The Australian.

“It would also, with the international ownership structure allow them to operate to the US, something they have long aspired to.”

A Singapore takeover would trigger a Foreign Investment Review Board application.