Berlin may participate in Lufthansa capital increase

The German government is considering participating in a planned EUR3 billion euro (USD3.6 billion) capital increase at Lufthansa (LH, Frankfurt Int’l), Finance Minister Olaf Scholz has told Reuters, a move that could help repay the airline’s state-backed bailout. Reuters last month reported that Lufthansa was working with Deutsche Bank and Bank of America on plans for a capital increase in either the summer or autumn of 2021. “We are always taking a close look at this. One thing is clear: if companies have a goal of freeing themselves of a need for state support, we will make that possible,” Scholz said in an interview with Reuters. “Our support was put in place so that companies could survive the crisis and then stand on their own feet again,” he said. Scholz said any decision on a capital increase should not be rushed. “First of all, it is important that the decisions in the company are well prepared,” he said. Lufthansa was not immediately available for comment. The bulk of a German government-backed EUR9 billion (USD10.9 billion) bailout of the German carrier, hit hard by the COVID-19 crisis, consists of a so-called silent participation of EUR5.5 billion (USD6.6 billion) which Lufthansa intends to repay in part with proceeds from the capital increase. The bailout secured the company’s solvency and sufficient liquidity for at least the whole of 2021, the company told investors in April 2021. However, IFRS equity declined and remained under pressure based on the 2021 financial outlook. The participation of the German government could send a positive signal to markets and help ensure the refinancing is successful and also limit a dilution of the government’s 20% stake. However, it could also prompt state aid questions from the European Commission (EC), say people in the sector. The Frankfurter Allgemeine Zeitung reports the topic also could become an issue in the federal election campaign. While political interference in Lufthansa operations is frowned upon, the government would risk diluting its stake – and therefore influence – if it does not participate in the capital increase. Bloomberg first reported the government was considering participating (at least partially) in the capital hike. Citing unidentified sources familiar with the matter, it said the government could sell part of its subscription rights and use the proceeds to purchase new shares. Alternatively, it could make use of more of its subscription rights and spend up to EUR1 billion (USD1.2 billion) to secure its liquidity position.