The small shareholders flock to a SAS in financial free fall. Has reached 263,000 shareholders. – E24
The shareholders of companies that receive bankruptcy protection in the USA normally lose all their assets. Nevertheless, SAS now has more shareholders and the share is rising sharply.
Scandinavian small speculators seem to have a huge appetite for companies in serious financial trouble. The day before SAS applied for bankruptcy protection in the USA, called Chapter 11, was 59 øre per. action. Just over a week later, the share is 12 percent higher.
This has happened even though the existing shareholders are usually left with nothing in companies that go through Chapter 11 in the USA. In the vast majority of cases, creditors and new equity investors take over the entire company.
Flows to aircraft in free fall
Despite this, the number of shareholders in SAS has increased since the crisis in the airline began to escalate. According to figures from SAS, the company has gained close to 6,000 new shareholders in the period from 31 October last year until the end of May this year.
And if we are to believe the very latest figures SAS states, the number of shareholders has increased by a further 26,500 in June. But these very latest figures are uncertain. This is because this increase may be due to SAS reporting too low figures for previous shareholders.
Over a quarter of a million shareholders
But regardless: According to SAS, the company has reached 263,000 shareholders.
Nearly half of these are Swedish, just over 40 per cent are Danish, while just under 9 per cent, corresponding to 23,000, are Norwegian. Again, with the proviso that SAS has spoken in favor of having shareholders earlier, it looks as if a similar Norwegian shareholder has multiplied since last autumn.
The well-known equity expert Robert Næss in the Nordea Funds warned all over the front page of Finansavisen’s paper edition on Thursday against the pricing of the SAS share. Næss called it “headless” to buy the SAS share now.
He believes that the share should fall at least 75–80 percent from today’s levels of over 60 øre. This is noticeable if SAS succeeds in getting out of Chapter 11 alive in the USA.
A price drop of approx. 75–80 percent from today’s levels is thus a best case for shareholders. In the worst case, and more likely, those who buy the SAS share today lose 100 percent of their investment – if they do not get sold in time to someone else.
The stock is rising anyway
SAS announced on Thursday that the strike means that the company may not receive new financing for the period of bankruptcy protection. And that in that case SAS must instead sell away large parts of the company.
But despite both SAS’s very negative stock exchange announcement and Næss’ clear warnings, the SAS share continues to rise.
– I think the explanation is that it is simple investors who look at stock prices, have fallen 80 percent for three years. And then they think, “How much will I earn if the stock price comes back where it was?” Maybe they also think so simply that the stock only must rise again when the strike is over.
This is what Næss says to Aftenposten / E24.
– Should actually be protected against himself
– They do not understand that the shareholders according to US rules for Chapter 11 should in principle be zeroed?
– No, they really should have been protected against themselves.
All stock analysts who follow SAS have predicted the share price at least down to 10 øre per share. action. And it was to the company applied for Chapter 11.
– It does not look like the speculators are listening to all the warnings?
– No, one reason may be that they do not want to listen to the experts. No experts had predicted that the stock would rise several days in a row now in the very last. But most likely they just do not follow, says Næss.
Another reason put forward by other experts is that the active small speculators do not care about the value of the company at all. But that they only trade on the SAS share’s movements from day to day.
Then the penultimate buyer is completely dependent on the last buyer being an «even bigger fool».
Has zeroed shareholders before
SAS’s CEO Anko van der Werff did not mention the shareholders as a group at all when he argued at a recent press conference that the company’s various stakeholders would benefit from a Chapter 11.
Maybe not so nice. He has previously taken the Colombian airline Avianca through a similar process in the United States.
The shareholders in Avianca were then completely zeroed.
Everything SAS has said about the existing shareholder’s position is the following:
“The expected conversion of debt into share capital and the new equity, which is part of SAS Forward (the savings plan, Editor’s note), will involve a significant utilization of existing shareholders.”
– Does the SAS management have a message for those who now buy shares at prices above 60 øre? Do you find reason to warn them?
– No, we have no special messages for them. On the Oslo Stock Exchange we are in the so-called «recovery box», and on Nasdaq, in Stockholm and Copenhagen, we are on the observation list. This means that the stock may have a higher risk and volatility than usual. And that you should analyze properly before buying or selling.
Louise Bergström, head of investors at SAS, writes in an e-mail to Aftenposten / E24.
The table below shows how large the price drop can be from today’s market value. This provides different combinations of how much ownership today’s shareholders may retain and earn on equity under Chapter 11.
Benefit with liquidity
It is probably just a matter of saving some value for the shareholders who remain with shares until a US judge has to approve SAS’s plan for refinancing
The first is that the new equity investors and creditors see the benefit of having an existing shareholder base in place.
This happened when Norwegians went through a similar process of bankruptcy protection in Ireland and Norway. In the end, the Norwegian shareholders were allowed to keep as much as 5 percent of the airline. To do so, the Irish judge had to be persuaded. He really wanted to zero them out completely.
The argument from the Norwegian management was that it is an advantage for the liquidity in the share and the existing shareholders to keep some.
The second issue is legislation regarding existing shareholders’ first right to subscribe for capital increases. If Swedish legislation provides such rights, then the subscription right itself will entail a value for the current shares.
While the shareholders in Avianca as mentioned were completely zeroed, got the shareholders of Brazilian-Chilean LATAM to keep around 30 percent of the ownership of the airline under Chapter 11. According to Bloomberg, this happened because Chilean law gave existing shareholders such strong rights.
However, the shareholders in SAS should probably hope to see a maximum of 1–3 per cent.