Air New Zealand shares drop as investors assess $2.2b financial rebuild

Air New Zealand shares dropped nearly 6.5% down to NZ$1.28 earlier this morning as investors digested the implications of the airline's plans to raise $2.2 billion in equity and debt. From next week Air New Zealand starts the process to issue more than two billion new shares. Under the two for one rights offer existing shareholders can buy shares for 53c each. When you add this new capital to the current value of all the shares in the company and divide that by the total number of shares that will be on issue the share price lands at 81c. This is known as theoretical ex-rights price or Terp and the airline has said it expects a share price reset. Greg Smith, head of retail at Devon Funds, said he wouldn't expect the share price to fall towards that level until the rights offer opens next week. Most shareholders would be assessing the details of Air NZ's offer and the substantial discount to buy more would be attractive. Aside from the implications of the rights offer for the share price, the airline faces headwinds, said Smith, with rising oil prices a big obstacle. Oil prices had moderated from recent highs but had risen overnight and was a substantial cost to the airline. The stock is popular with Sharesies investors and the firm today said it couldn't offer any financial advice on whether or not an investor should take part in any offer. "We do, however, aim to educate about corporate actions such as a rights offer and we are doing as much as we can throughout the offer period to ensure those who want to exercise their rights to buy more Air NZ shares at the deep discount can do so."<br/>