Fundies have five demands for the Virgin Australia float

afr.com:

Local fund managers seem to agree on five things they want from Virgin Australia boss Jayne Hrdlicka when it comes to the airline’s looming initial public offering.

Firstly, they want the IPO, and more like it, to help rebuild the Australian equity market, which they say has been depleted by a cheap debt-fuelled wave of private equity-led merger and acquisition activity.

Virgin’s newest aircraft, nicknamed Monkey Mia, was the first of its Boeing 737 MAX-8 fleet to arrive in Australia in June. 

Secondly, they worry Virgin will be listing against a deteriorating economic backdrop that will crimp demand for air travel. The extent to which it will be curbed is still a matter for some debate, however.

Thirdly, they all express concerns about Virgin 2.0’s register being dominated by other airlines, many of which are state-owned and have less appetite for returns and their own strategic interests at play.

Fourth, they want Virgin’s financial sponsors at Bain Capital to be locked up in the stock for a period of time.

“Before you even consider the fact it’s an airline, one of the pervasive issues is the level of overhang, or sense of anticipation that the remainder is coming when it comes to some of these private-equity sell downs, like Latitude Financial or Pepper Money,” says one fund manager.

“These stocks struggle to outperform knowing that one of the central issues is financial sponsors being unwilling to sign up for long lock-ups.”

And finally, all of them demand Virgin shares be priced at a deep discount to Qantas.

To that end, the last few weeks’ trading might actually help to convince shareholders they are getting a bargain by piling into the Virgin float if it happens soon.

Qantas shares have tanked by 25 per cent since