Tui shares tumble as holiday group launches discounted fundraiser

Tui has launched a big €1.8billion (£1.6billion) discounted fundraise to help pay off its debts, including cash owed to the German state for aid it received during the pandemic.

The Germany-based holiday group, which has its shares listed in both Frankfurt and London, said it would issue stock at €5.55 per new share, which represents a discount to the theoretical ex-rights price of around 40 per cent.

Tui shares in London dropped 6.2 per cent to £13.26, and tumbled 5.5 per cent to €15.12 in Frankfurt following today’s announcement.

The company said it plans to use the net proceeds of around €1.75billion to reduce interest costs and debts accrued when Covid halted travel. 

This includes repaying €420million to the German government, €58.7million in bonds, including accrued interest of around €750million, and reducing its €2.1billion credit line to €1.1billion.

The fundraiser is expected to slash Tui’s net debt of €3.4billion to around €1billion.

This would reduce net interest payments by approximately €80million to €90million, the company added.

It also said that the surge in holiday bookings reported at its first-quarter results in February had continued. 

Russ Mould, investment director at AJ Bell, said the fundraise, while hurting the share price in the short-term, could be a route to recovery for the troubled travel operator.

‘Burdened with debts accrued during the pandemic, TUI has been constrained in its ability to invest for growth as the travel sector recovers,’ he said.

‘A brief update on trading suggested continuing momentum in bookings but far too much of the company’s cash is currently disappearing in interest payments.

‘The question is whether the money raised will be sufficient. Shareholders may stomach the dilution once but if TUI is forced to come back with its begging bowl again before long it may receive short shrift.’