TAP seeks state guarantees for €350M in new bonds to ease cash crisis

Portugal’s national airline, TAP, has sought state guarantees for two possible financing operations with banks, Haitong and ICBC Spain, for a total of 350 million euros, according to a letter sent to the regulator on March 20th that Lusa has seen.

In the letter, which is addressed to the National Civil Aviation Authority (ANAC) and signed by TAP executive board, the flag carrier – which is 50% owned by the Portuguese state – makes several requests, citing the situation resulting from the Covid-19 pandemic.

“TAP requested on 19 March last from Parpública [a state holding company] the provision of a guarantee in connection with two possible financing operations, as proposed respectively by Haitong Bank and ICBC Spain,” the letter reads, in a reference to the Spanish unit of Industrial and Commercial Bank of China.

 

At issue is a proposal from Haitong for “an issue of TAP bonds, with private placement in the amount of up to EUR 200 million, with possible underwriting by Haitong of up to 50% of the issue value (with a maximum of EUR 100 million), with a maturity of between 7 and 10 years, with interest corresponding to OT/PGB [Portuguese treasury bonds] plus 40-70 bps [basis points] and a guarantee to be provided by the Portuguese Republic,” the document explains.

In the case of the ICBC, the airline asked the state to consider a bond issue, to be “subscribed and/or syndicated by the ICBC, in the amount of up to 150 million euros, with a maturity of 3 years, interest of 425 bps plus Euribor at three months and guarantee to be provided by the Portuguese Republic.”

TAP argues in the letter that the proposals “present extremely competitive financial conditions, particularly in the current context, and require the provision of a guarantee by the Portuguese State”, which the airline believes to be “reasonable and adequate” in the current situation.

It stresses the “importance of such financing” to be able to “minimise the damage caused by the covid-19 outbreak and ensure the sustainability of its financial position.”

On 20 March TAP said that it needed an estimated 350 million euros in finance by June to meet the needs generated by the crisis, which has reduced activity to a few essential flights.

Speaking to Lusa on 18 April, David Neeleman, the US-Brazilian investor who with Portuguese businessman Humberto Pedrosa owns the Atlantic Gateway consortium, which holds of 45% of TAP’s shares, said that in the context of the restrictions imposed by the pandemic, the airline had “immediately” contacted “European and other investors to obtain additional financial support” to cope with the negative effects of this crisis. He added that, “in general, investors maintain their interest in financing TAP, having presented very interesting and competitive financing proposals, with a state guarantee.”

Among the various mechanisms available in terms of state support, he said, “the issue of guaranteed debt is the one that has been most frequently adopted by our competitors because it has a series of advantages, including the [short] execution time, which is crucial for TAP at this time.”

In the same letter to ANAC, the airline also reports several requests that it has already made, for exemption from and deferment of payment of taxes and social security, as well as of airport and other fees due.

It also requests to be able to use air bases at Montijo, Sintra and Monte Real for the “parking” of aircraft, to postpone the submission of CO2 (carbon dioxide) emissions licenses and several other operational measures, such as reimbursement in the form of “vouchers” and more flexible rules with regard to passing on and monitoring passengers.