Air Serbia to renegotiate Etihad Partners loan
Air Serbia has notified Etihad Airways Partners I BV, a special purpose vehicle set-up by Etihad Airways in September 2015, that it will be potentially unable to meet its debt obligations and payments as a result of the financial strain caused by the coronavirus Covid-19 pandemic and will hold talks to reach a mutual agreement. Five years ago, Air Serbia’s part-owner Etihad embarked on an international roadshow in Abu Dhabi, Dubai and London, supported by lead advisor Goldman Sachs and UAE-based ADS Securities and Anoa Capital by creating a funding vehicle called Etihad Airways Partners I BV and Etihad Airways Partners II BV. The group successfully raised 500 million US dollars, rising within days by a further 200 million following a surge in interest from the international finance community. The raised funds were split across the seven Etihad Partners entities, including Air Serbia, for a mixture of capital expenditure and investment in fleet, as well as for refinancing. The funding vehicle comprises largely of local and international investment funds.
In September 2015, Air Serbia concluded a loan for 52.9 million US dollars from EAP I BV which matures in September 2020 with an annual interest rate of 6.96%. Furthermore, it finalised a loan for 63 million dollars with EAP II BV on May 20, 2016, which matures in June of next year. In a notification of a potential debt obligation event of default, EA Partners said, “As a result of the ongoing economic uncertainty in relation to Covid-19, and due to the official closure on March 19, 2020 of airports in the Republic of Serbia for inbound and outbound flights, the Borrower [Air Serbia] has notified the Issuer and Agent [EA Partners] of its inability to perform its principal business activity of worldwide civil air transportation and, therefore, of its potential inability to satisfy its obligations under Clause 6 (Repayment) of the Debt Obligation Agreement and any further payment obligations under the Debt Obligation Agreement”. It added, “The Issuer hereby confirms that any such default under the Debt Obligation Agreement would, in accordance with Note Trust Deed, render it a Defaulted Debt Obligation. The Borrower has stated its willingness to engage in meaningful discussions to find a mutually acceptable and suitable outcome. The Issuer confirms that payments due under the Debt Obligation Agreement were made by the Borrower on the most recent interest payment date being, on or around, March 19, 2020”.
The Serbian Ministry for Construction, Transport and Infrastructure recently noted that Air Serbia has incurred some forty million euros in losses since the start of the coronavirus pandemic, which grounded the carrier for two months. The ministry estimates that losses in the country’s entire aviation sector, including its national airline, airports and air traffic provider will reach up to 200 million euros by year’s end. The Ministry has also said it is working with Air Serbia on a range of measures to aid the company. “One of them is providing assistance in overcoming existing losses the airline has incurred due to the ban on commercial flights during the duration of the recession in the air transport sector. Another is to cover the losses for the transport of passengers and cargo”, the Ministry for Construction, Transport and Infrastructure said. It added, “First and foremost we will discuss relief for taxes and utilities, especially those payable to the state. A decision on whether and when the state would increase its ownership stake in Air Serbia would depend on the conditions and our financial capabilities”.
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