Emirates Airline is planning to issue Islamic and conventional bonds early next year to finance new 22 aircraft costing $4.5 billion, according to a Gulf News report citing Brian Jeffery, senior vice president for corporate treasury, if market circumstances allow it.
However, should bond markets fall and the cost of this form of borrowing becomes too high then the airline could always organize what would probably be the most popular initial public offering in the history of the UAE, albeit maybe not quite as successful as Aldar Properties in 2005 that attracted more than the national GDP in subscriptions.
No IPO announcement
Emirates has no plans for an IPO at the moment. Mr. Jeffery said the carrier has ‘pretty much the same strategy for the next financial year as this year. It’s going to be a diversified structure… bond issues, operating leases, US export credit facilities and financing leases’.
But Emirates needs a lot of cash in next few years to finance the delivery of the huge aircraft orders it placed in the 2000s. The total bill is $22 billion over the next four years or about $5.5 billion per annum. Mr. Jeffrey noted that bond sales were unlikely to happen before the highly-profitable airline reports its half-year results this November.
Could Emirates end up floating an IPO in 2014 instead of raising bond and lease finance as it has so successfully in the past few years? It flew almost unscathed through the Dubai debt crisis of three years ago when Abu Dhabi came up with an eleventh hour, $20 billion bailout for the emirate.
However, the US Federal Reserve lost control over the bond market this summer and interest rates are on the way up. For mega-borrowers like Emirates the pendulum may have already swung in the direction of the stock market as a cheaper place to raise funds, and happily the local Dubai Financial Market is currently also the strongest performing stock market in the world.
Would it not make sense to tap into this source of funds? Well, only if the figures add up of course. Then again an IPO for Emirates Airline would be a massive boost to the DFM itself and create fund raising opportunities for local corporates who now also find the bond market more expensive.
Dubai Government has always been reluctant to do what some might say is selling the family silver. But then the argument is always that the government would end up holding a slightly smaller stake in a much bigger pie.
The money is going to have to come from somewhere to expand Emirates’ A380 fleet to 90 planes at a time when British Airways has only just taken delivery of its first super-jumbo.