Hi,
Welcome back to Maori Millionaire.
We are on a mission to empower Maori to become financially independent.
Anyways, to the story....
Have you been hearing the news about Air New Zealand and their $2.2B plan to 'recapitalize'?
If you have, and you are wondering:
What does this mean for me?
What should I do?
Why is Air NZ doing this?
See below where I will answer all of these questions and more.
What is Air New Zealand?
Air New Zealand is New Zealand's leading airline. They provide international and domestic travel.
Their three business goals are:
Growing our business
Optimizing international streamline
Lifting loyalty business
What's happening?
Air New Zealand is raising capital. This money will be used to repay a crown loan, strengthen it's balance sheet, improve liquidity, and prepare the airline for post-Covid travel + business!
Many businesses have struggled due to the effects of Covid restrictions, employees battling Covid, no tourism occurring, and many of the other flow on effects that the global pandemic has.
Air New Zealand needs money.
Think of this as an Air New Zealand 'Sausage Sizzle'
Air New Zealand is the guy flipping the sausages, and you are the customer.
A 'rights offer' is what we call what is happening right now. This is when a business offers shareholders the opportunity to buy further shares in their company.
What's the offer?
For every 1 share you own in Air New Zealand ( NZX: AIR; ASX: AIZ), you'll be able to purchase 2 shares.
So, if you own 5 shares, you'll be entitled to buy 10 shares.
Most times a 'rights offer' occurs, it happens at a discounted price.
Air New Zealand is offering the shares at $0.53 per share.
This is a 60% discount to the price of a share at 30 March 2022.
So, should you buy these stocks?
If my name was Greg Foran (CEO of Air New Zealand) i'd say yes! Please buy these stocks. Air New Zealand will get more capital each time you purchase a stock. We also owe money to the crown and these funds will help us repay this. We also need capital to prepare for an all time boom once Covid leaves.
But, my name is not Greg. So, I'll be offering my own perspective:
Disclaimer: None of the information provided in any of Maorimillionaire.com should be considered as financial advice. You should always seek your own advice from a qualified financial adviser before making financial decisions.
What am I doing?
A key issue with such capital raises is “dilution” – the decrease of an existing shareholder’s percentage ownership in a company. Only in the rare case that all shareholders choose to participate fully in a rights issue, will they all end up retaining the same percentage holding of the company and there will be no dilution – albeit at their own extra expense.
So, even if every person who owns an Air New Zealand stock was to purchase the 2 stocks that they are entitled to, and no dilution occurred, - I'd still own the same % of Air New Zealand but I would have had to increase how much I've paid for it.
I currently own 206.4435 shares of Air New Zealand.
They are currently performing at -14.86%
If I were to buy all of what I am entitled to buy:
206 stocks x 2 = 412 stocks
412 stocks x $0.53 = $218
So, it would cost me $218 to buy all of which I am entitled to purchase.
What do you get out of owning more capital?
Capital gains.
When Air New Zealand is able to raise the money they require to keep their business running, and hustling - they will become profitable again. What this means is that our share prices will increase in value, making us money.
If I decided not to buy the new stocks, my original 206 stocks would become very diluted with all of these new stocks being introduced. What this means is that when the company soars, my personal holdings in AIR NZ will be merely untouched. If however, I decide to purchase more stocks, at a discounted price, and the stocks go up in value - this will lead to capital gains.
The beauty of investing is that all the decisions you make are about learning how to manage risk, diversify your portfolio, decide what is best for you and your own personal needs and goals.
For me personally:
My goal is to achieve long term returns.
I believe that long term investing doesn't require 'predicting' the performance of companies or spending hours and hours researching individual stocks. What it does mean is diversifying my portfolio so that if one industry fails, my portfolio won't cry.
What this means is that I will be purchasing the new stocks - investing a further $200 in to Air New Zealand. In comparison to the rest of my Sharesies portfolio this is only minor. If there was a new thing where black clouds started growing in the sky which made flying impossible, and Air New Zealand suddenly crashed - I wouldn't really be affected. My other stocks would be fine as they are in an industry where they would not be affected by Air New Zealand's performance.
So, as long as you have stocks in other industries or you are fine with the idea that you could potentially lose all of your money in Air NZ stocks, then I would say go for it! However, if you have no savings to support you in the event of a crash in the stock market, no other shares, or you intend on removing your shares from the stock market in less than 3 years, I'd recommend to pass up on the opportunity to purchase more. Don't sell at a loss though.
If you want to read up on this:
Sharesies:
If you don't already have an account and are looking at purchasing stocks, use the following link to sign up. You'll get $5 added to your wallet, just for signing up!
If you have any questions, drop them in the comment section below.
For now,
Happy investing!
Naku noa,
Te Kahukura