Bombardier stock takes a tumble on US$492M share sale
Company looks to shore up balance sheet as it awaits approval of Airbus tie-up
Bombardier Inc. fell the most in five months after announcing a plan to sell new shares in an effort to strengthen its balance sheet.
The offering furthers Bombardier’s efforts to shore up its finances, while diluting investors who had previously been enjoying a rally as chief executive officer Alain Bellemare made headway on a five-year turnaround plan. Bombardier has about US$9.2 billion in long-term debt after investing heavily in two aircraft-development programs.
Through Monday, shares had risen 31 per cent this year. Bombardier is taking advantage of the surge to raise about $638.4 million (US$492 million) with its first stock sale in three years. Canada’s largest aerospace company is offering the shares at a 4.5 per cent discount to the closing price Monday.
“If you buy into Bombardier, one of the risks you run as an investor is that there will be events like this one that take away from the earnings,” said David Tyerman, an analyst at Cormark Securities in Toronto. “This is another step to give themselves more breathing room. Even if the plan works, and so far it’s working, they will need a long time to fix the debt situation.”
The shares ended the day at $3.77, down 5.8 per cent in Toronto after sliding as much as 9.3 per cent for the biggest intraday decline since Sept. 27.
Before the share sale plan, Bombardier had posted the second-biggest advance this year on Canada’s benchmark S&P/TSX Composite Index.
“The improvement in the valuation of Bombardier recently may have triggered an opportunity whereby the company begins to lower financial leverage earlier while at the same time de-risking the transformation plan in the immediate term,” Fadi Chamoun, a BMO Capital Markets analyst, said in a note to clients. The stock sale represents “an insurance policy that might be worth the costs given the unpredictable nature of the aerospace segment,” he said.
Bombardier, which also makes trains, will sell 168 million of its widely traded Class B shares at $3.80 apiece, according to a statement Monday. The offering is expected to be completed by March 23.
Proceeds will be used to supplement working capital and for general corporate purposes, “thereby building further operational flexibility and re-equitizing the balance sheet,” the company said. The Montreal-based company has said it’s “well positioned” to break even on a cash-flow basis this year — a major milestone for Bellemare’s turnaround plan.
Options for Bellemare and his team include buying back the Caisse de Depot et Placement du Quebec’s minority stake in Bombardier’s rail unit after this year, Cai von Rumohr, a Cowen & Co. analyst, said in a note to clients. The Caisse, Canada’s No. 2 pension-fund manager, owns about 28.5 per cent of the unit.
Bombardier last sold stock in 2015 when it issued $1.1 billion of Class B shares a few days after appointing Bellemare as CEO.
Credit Suisse Securities, National Bank Financial, UBS Securities Canada and TD Securities are leading the stock sale. The underwriters have an option to purchase another 25.2 million shares at any time up to 30 days after closing of the offering. That would increase total proceeds to $734 million.
Meanwhile, the procurement chief for Airbus said the European plane maker will need to increase sales of Bombardier’s CSeries jets to cut production costs, Reuters reports. Last year, Airbus agreed to take a majority stake in Bombardier’s CSeries jetliner program, which had not secured a new order for the 110-130 seat plane in the 18 months before the deal.
Their partnership is awaiting regulatory approval and both Bombardier and Airbus have expressed optimism over the CSeries’ longterm sales prospects.
“First we’re going to have to sell the aircraft, in order to then work with suppliers on costs of the program, because at the moment there is a gap,” Klauss Richter told Reuters at Airbus’ headquarters in Toulouse, France.
In November, EgyptAir signed an initial order for 12 CSeries jets and Bombardier also received an order for 31 planes from an undisclosed European buyer, marking an end to its sales drought.
Quebec Premier Philippe Couillard, also speaking to reporters at Airbus’s Toulouse headquarters, said approval from the regulators was the final hurdle standing in the way of a viable future for the CSeries.