The sale of quasi-treasury shares and an increase in free float

Andrey KozhokaruSeptember 21, 2017

On 20 September, LLC “Aeroflot- Finance”, a subsidiary of Aeroflot Group reported successful sale of all of its quasi-treasury shares. As a result, free float increased, reaching 45.8%.  

On 19 September “Aeroflot- Finance” LLC, a subsidiary of Aeroflot Group announced the sale of 53 716 189 common equity stocks (4.8% of total issue). On 20 September, LLC “Aeroflot- Finance” reported successful sale of all of its quasi-treasury shares. Shares were sold at 182 rubles per share what is 4.2% lower than the previous trading day closing price. Eventually, free float of the Company increased, reaching 45.8%. Net proceeds from the sale approximated RUB9.8 billions. Aeroflot plans to use the sale proceeds for general corporate purposes. Demand for the offering significantly exceeded expectations. According to the Company, there were international investors from continental Europe and Great Britain and Russian investment funds among buyers.

In 2014 a presidential decree was issued, which permit to decrease the government holdings in companies to the controlling interest (50% + 1 stock). Then there were plans to sell quasi-treasury shares, to issue additional shares to dilute government stake to 50% + 1 share and the possibility of sale of Rostec shares had been discussed. Eventually, those plans were not realized, partly due to negative market environment during 2014-2015. Repeatedly it was mentioned that government shares should not be sold at low prices.   

Our opinion:

We view the high demand for the issue and the increase in liquidity of Aeroflot’s stocks as positive factors. Considering previous plans of the Russian government, there is potential possibility of sale of Rostec shares (3.5% of total issue). Aeroflot’s shares have demonstrated substantial growth for the last 12 months, increasing by more than 70%. In the absence of concrete financial reason for the realization of quasi-treasury stocks, it can be judged that Group’s management considers current share price and market conjuncture as favorable for the sale of quasi-treasury stocks and possibly does not expect significant price appreciation of Aeroflot’s stocks in near term perspective.

We think that at the current moment the sale of quasi-treasury stocks could not change investors’ expectations of forward operating and financial results of the Company. In our valuation model, the number of shares remains the same. We keep our Buy recommendation.