Buyout firm to move quickly to refloat airline

Bain Capital plans to move quickly to re-list Virgin Australia five years after acquiring the airline out of receivership.

The ASX IPO, outlined in a draft prospectus circulated to stockbrokers, is targeted at raising $685 million by offering 30% of Virgin’s shares at $2.90 each. This will result in the business listing with a $2.3 billion market capitalisation.

Bain Capital will retain a holding of around 40%. The Boston-based buyout firm locked in a return on its investment in Virgin last year by selling a quarter of its stake to Qatar Airways.

At $2.90 each, shares in the IPO will be represent around 7x the expected earnings per share (EPS) for the current financial year (2024-25) but this should be a significant discount to the EPS ratio for larger rival Qantas’ (ASX: QAN) which was close to 13x on 5 June.

The Virgin float is to be managed by investment banks, UBS Australia, Goldman Sachs, Barrenjoey Capital and Reunion Capital.

UBS told potential investors the transaction had received strong support from domestic and global institutional anchor investors and demand exceeded the offer size.

Virgin shares are expected to begin trading on June 24.

Assuming the re-listing goes ahead, the Virgin float will be only the third sizeable ASX listing in the last 12 months following the float of Guzman y Gomez (ASX: GYG) in June last year and the backdoor listing of Chemist Warehouse, through Sigma Healthcare (ASX: SIG), in February.  

Following the float, unless Virgin’s share price rises well above expectations, Bain Capital will be restricted from further selling down its stake until after the airline releases its accounts for the half-year to December.

Virgin has told potential investors its capital expenditure over the 2025-26 financial year will be $1.1 billion, well up from the expected net capital expenditure of $511 million over the current financial year. New aircraft and new engines will account for most of the increased expenditure.

Bain Capital was close to re-floating Virgin in 2023 but called off the IPO because of unfavourable market conditions. This time, the deal appears to be driven largely by the airline’s current good performance. The collapse of Bonza and Regional Express (REX) airlines has helped boost demand for seats on main routes for both Virgin and Qantas.  

Image: Virgin Australia’s financial performance is currently flying high.