Hungary's Wizz Air sees IPO plans crash again

By bne IntelliNews June 16, 2014

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Hungary's Wizz Air scrapped plans to launch an IPO for the second time in close to 12 months on June 16. Citing "market volatility", the halt comes less than four weeks after Central and Eastern Europe's largest budget carrier announced it would list in London this month.

“Wizz Air today announces that the company has decided not to proceed with an IPO at this stage due to the current market volatility in the airline sector,” the airline said in a statement. “The board will continue to focus on executing its strategy of driving growth and value.”

The move comes as other low-cost carriers such as Ryanair and Easyjet have seen their share prices drop by up to 10% since the start of June. Ireland-based Ryanair has fought a bitter fight with Wizz Air to fill the void left by the 2012 grounding of Hungarian national carrier Malev, grabbing extra slots in Budapest in order to expand regional coverage. The FTSE Mid-250, the index on which Wizz Air was set to launch, has also sagged recently.

The wariness on the airline sector stems from dismal forecasts announced by major European carriers, albeit they're concentrated on Western European markets. Germany's Lufthansa saw its shares drop sharply on June 11 after it cut earnings forecasts for this year and next, blaming a capacity boost at Gulf competitors, reports Bloomberg. Spiking oil prices due to increasing strife in Iraq has also hit the outlook for fuel guzzling carriers.

Unnamed sources told Reuters that the recent turbulence in the airline market meant Wizz Air would not have been valued at around GBP500m (€625m) as it had hoped. The sources also claimed however, that Wizz Air could soon take another stab at the float, although none was ready to offer an estimate of when that could happen. "It typically takes some time before launching another roadshow," one said.

Third time lucky?

The Hungary-based airline announced on May 22 that it would revive plans to conduct an IPO on the London Stock Exchange in June. It said at the time that it hoped to raise around $200m through the sale of new and existing shares. The capital raised was set to be used to expand routes in CEE and further to the east. 

The airline's bid to chase underserved markets with a growing appetite for flying, rather than fighting for a Western European market still in the doldrums, will not be upset by the cancelled IPO, the company claimed. "The outlook for Wizz Air's business remains extremely positive and unaffected by the decision not to proceed with an IPO (initial public share offering)," the company said. An unnamed source backed up the claim to the FT, adding Wizz Air could try and float again in about six months.

The collapse of Malev allowed Wizz Air to swiftly step in to boost its capacity at Budapest airport, and the struggles of flag carriers in the Baltics, Poland and Czech Republic have only strengthened its hand in the region. The company says it has a market share of 38% in CEE. 

"We will continue to grow the business. New markets can be stimulated," Varadi said in May as he announced the IPO plan. The company wants to expand its fleet to 82 planes by the end of 2017 as it eyes consolidation in the sector. "We expect more consolidation in the market. It is hard to say when and where but we expect consolidation and we want to be able to act," the CEO stated. 

Wizz Air also wanted to source cash to strengthen its balance sheet. Existing shareholders, including Indigo Partners, had planned to pare their stakes to around 50%, although the private-equity firm intended to remain the largest shareholder. It had also eyed lowered borrowing costs as an additional benefit from the planned float.

The cancelled June listing means that if Wizz Air does have another pop at going public it will hope it's third time lucky. Having apparently decided to bypass the Budapest bourse to list in London, the airline was reportedly due to make an IPO last summer, but the sale was quietly put on the back burner, with sources suggesting the company may look for a strategic investor instead.

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