The Virgin Australia IPO: A Windfall for Bain Capital Raises Questions

Staff Writer

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Image for a blog post with an action shot of an angry Virgin Australia stock investor about to catch a plane

As Bain Capital prepares for the anticipated IPO of Virgin Australia, the majority owners enjoy a significant capital return, leaving shareholders to ponder the implications.

In a significant development for Virgin Australia, majority owners Bain Capital are set to receive a massive AUD730 million capital return ahead of the anticipated IPO later this year. The return is almost equal to what the US private equity firm initially invested when acquiring 93% of the airline in 2020. This revelation, combined with recent internal communications and the involvement of investment banks, raises questions about the implications and motivations surrounding Virgin Australia’s IPO.

Capital Return and Shareholder Profits

Recent leaks of internal Virgin Australia emails written by Chairman Ryan Cotton have shed light on the advanced plans for capital return to shareholders, separate from any potential IPO windfalls. Bain Capital, as the majority owner, will be the primary beneficiary of this AUD730 million return. The Virgin Group holds a 5% stake in the airline, with the remaining 2% owned by the Queensland Investment Corporation.

Implications of the IPO

The leaked email from Chairman Ryan Cotton also confirms that the IPO planning is well underway. While the timing remains uncertain and contingent on market conditions, the ultimate goal is to return Virgin Australia to the Australian Securities Exchange (ASX) at the opportune moment. The IPO is expected to value the airline at approximately AUD2.5 billion, offering shareholders a substantial profit opportunity.

Underwriting and Loan Arrangements

To facilitate the capital repayments, Virgin Australia engaged in talks with several investment banks, ultimately appointing UBS, Barrenjoey, and Goldman Sachs as underwriters for the IPO. UBS and Goldman Sachs are also contributing AUD300 million in loans toward the capital repayments, while the remaining funds will come from Virgin Australia’s cash reserves.

The Employee Perspective

On the same day as the internal email was sent, Virgin Australia CEO Jayne Hrdlicka informed eligible staff members that they would receive full profit share bonuses this year. The bonuses, totaling 6% of an employee’s salary over a two-year period, aim to recognize their contribution to the company’s success.

CEO’s Personal Leave and Canceled IPO Lunches

Jayne Hrdlicka’s absence from the public eye can be attributed to her personal leave following the recent passing of her husband. This unfortunate event led to the abrupt cancellation of non-deal roadshow IPO lunches in Sydney and Melbourne. The decision was primarily motivated by unforeseen personal circumstances among the Virgin Australia presenters.

Motivations behind the listing?

As Virgin Australia’s IPO approaches, the substantial capital return to majority owners Bain Capital raises questions about the motivations behind the listing. While shareholders stand to benefit from potential profits, it is essential to scrutinize the broader implications and evaluate the airline’s future trajectory. Investors and industry observers eagerly await further developments as Virgin Australia navigates this crucial phase of its corporate journey.