Virgin Blue in trading halt

Virgin Blue, parent of New Zealand's Pacific Blue was placed in a trading halt today pending what is believed to be an announcement of a capital raising on Wednesday.

The halt followed a story in The Sydney Morning Herald this morning.

Speculation has been rampant in the last two weeks about Australia's second largest carrier has been scouting around investment banks to find an organiser to raise much needed funds to bolster the company's balance sheet and to cement a new joint venture announced last week with Delta Airlines, subject to regulatory approval.

Virgin Blue reported a net loss after tax for the six months to December 31, 2008 of A$101.4 million ($126.114m) and analysts are predicting a full-year loss at June 30 this year of about A$150m ($186.56m).

Word around the investment traps is Virgin Blue intends raising up to A$400 million amid market speculation the airline would have to bring in a cornerstone investor to achieve the target.

This means that Richard Branson's Virgin Group, owner of a 25.5 per cent stake in the airline, would be unwilling or unable to participate in any capital raising.

Goldman Sachs JBWere is the investment bank mentioned as playing a role in the capital raising.

A spokeswoman for Goldman Sachs JBWere refused to comment, and a spokeswoman for Virgin Blue denied any relationship with Goldman Sachs JBWere. "GSJBW are not appointed in any capacity to act for Virgin Blue, and this is why we continue to refrain from commenting on speculation," she said. "It ranges from Harry Potter imaginative to mischievous to just dead wrong and unvalidated, as in this case."

She refused to comment on questions about a capital raising or the potential timing of a capital raising. Virgin Blue's ability to make a capital raising of significant size has been called into question by analysts. Its market capitalisation is now at A$324 million.

Investor appetite has been buffeted during the recession, shares in Virgin Blue slipping 39 per cent to its current price of 30.5c over the past year. The Herald has reported a lukewarm response to the sounding out of investors about capital raisings made by Virgin Blue managers.

Virgin Blue was listed in May 2003 at A$2.25 and reached a high of A$2.80 in February 2007. The airline was buoyed on Thursday by an announcement it was planning a joint venture with Delta Airlines on the US-Australia and the US-South Pacific markets.

The joint venture, which requires regulator approval, was seen by analysts as defraying Virgin Blue's costs on the routes and reducing the period it would take to make a profit.

A Macquarie Equities analyst, Russell Shaw, upgraded the airline to a neutral because of forecast strong growth in earnings per share next year and the year after.

- SMH and BusinessDay