Norwegian Air plunges 63% on plan to convert debt to equity

Norwegian Air Shuttle ASA is fighting for survival, with a last-ditch plan to convert debt to equity driving its share price down as much as 63% during the first frantic moments of trading on Tuesday.

Norwegian Air’s proposal will dilute shareholders already counting their losses after Covid-19 ruined the company’s efforts to return to profitability. The plan calls for creditors, including aircraft lessors and suppliers, to convert as much as 44.5 billion kroner ($4.3 billion) in debt in order to meet government terms for the carrier to access a state aid package, and for a private placement.

In the first trading in Oslo since the plan was announced last week, the shares suffered their biggest drop and fell to the lowest level since Norwegian Air’s listing in 2003. The decline was 37% by 10:56 a.m. local time. The company was placed under special observation, a move used when a security’s valuation is particularly uncertain.

“Norwegian is at the end of the line,” Sanford C. Bernstein Ltd. analyst Daniel Roeska said in a note to clients before the market opened. Though there’s still hope for the airline, the situation is “lose-lose” for shareholders, he said, downgrading the stock to underperform with a target price of zero.

Widespread restrictions on travel due to the novel coronavirus destroyed Norwegian’s target of returning to profitability this year, after it deployed sweeping measures to cut costs and reduce capacity following years of debt-fueled growth. The company’s fleet is now largely grounded.

Norway’s government last month offered loan guarantees to airlines, including 3 billion kroner for Norwegian Air. But the aid came with strict terms: the company has only qualified for a tenth of it for now, and needs to improve its equity ratio to access the rest. While the government views airlines as important infrastructure, it pointed to Norwegian’s high indebtedness before the crisis and said it doesn’t see state support as an option unless other stakeholders also make an effort.

Norwegian had total debt of about $7.5 billion at year end, with more than $800 million coming due this year. The company is now negotiating conversion of more than half of its debt before putting the plan to a vote at an extraordinary general meeting on May 4.

The company is also asking shareholders to approve a private placement of as much as 400 million kroner, which would be the fourth in two years. In interviews in local media this week, Chief Executive Officer Jacob Schram asked equity investors to stick with the company, arguing there was “significant upside” ahead.