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TUI refinancing paves way for expansion
TUI Travel, Europe's biggest tour operator, said it would raise 440 million pounds to fund acquisitions and hasten the repayment of a loan to its majority shareholder TUI AG.
The group, formed through the tie-up of TUI AG's travel division and Britain's First Choice, said on Tuesday it had agreed to reschedule the repayment of 900 million pounds of borrowings from TUI AG, which has a 51.6 percent shareholding.
TUI Travel said it would launch a 300 million pounds five-year convertible bond issue and had agreed a new credit facility worth 140 million pounds.
The early repayment of part of the loan will help flush cash into TUI's coffers, replenishing its supply after it gave loans to both TUI Travel and container shipping unit Hapag-Lloyd.
TUI last year decided to sell Hapag-Lloyd to focus on tourism, ending a 10-year foray into container shipping. But it ended up keeping 43 percent of the shipper, more than planned, and has had to support it with credit lines.
The German government will also likely approve 1.2 billion euros in state loan guarantees for Hapag-Lloyd.
"It is very positive that TUI Travel PLC refinanced parts of the shareholder loan. Hence, significant parts of the money could be paid back to TUI, which eases financial constraints," Equinet analyst Jochen Rothenbacher said.
Shares in TUI AG were up 6.8 percent to 7.525 euros at 1015 GMT, with TUI Travel down 0.7 percent to 264 pence.
TUI Travel's Chief Executive Peter Long said the move would also enable TUI Travel to ramp up its expansion plans and acquisition activity. It announced on Tuesday a 55 million pounds investment in a joint venture with Sunwing in Canada.
Long said the group had typically spent around 100 million pounds each year on acquisitions but would now look to increase that investment following the fundraising.
The group will target bolt-on acquisitions of niche businesses in specialist sectors, investment in emerging markets such as Russia, India and China, and deals that could turn around underperforming businesses in mainstream markets.
Long said TUI Travel was well-positioned to meet expectations for the year to end September and was satisfied with its performance across all seasons.
TUI Travel and its main rival Thomas Cook have reduced the number of holidays they sell by more than a quarter in the past two years, enabling them to raise selling prices and avoid offering heavy late discounts to fill empty slots.
This has helped them to increase their profits while smaller operators have struggled to stay afloat. Britain's third-biggest travel firm, XL Leisure, fell into administration last year.
Market expectations for TUI Travel's full-year underlying pretax profit range between 357 million and 399 million pounds, according to a Reuters Estimates poll of 16 analysts.