Investors have reacted negatively to key details of the debt restructuring plan of GOL Linhas Aéreas Inteligentes (G3, São Paulo Congonhas), with shares slumping by more than 16% in five days after the board approved a warrant issue for the subscription of preferred shares, disclosing a potential dilution risk of more than 80% for shareholders.
Shares fell by 13% in trading on August 15 after global banker Citigroup downgraded GOL stock to "neutral" from "buy" on the news. "We believe that the deal entails a substantial dilution risk," analysts at Brazil's Itaú told Reuters.
This followed a statement on August 14, in which GOL informed its shareholders and the market in general that its board on July 26, had approved the issuance of warrants for the subscription of preferred shares. However, a separate notice to shareholders revealed a substantial dilution risk. "If only the minimum amount of 991,951,681 warrants is subscribed for, the potential economic dilution percentage resulting from the exercise of the warrants for the company's shareholders will be 70.32%. If all the warrants are subscribed for, and the respective rights attached to them are exercised, the percentage of potential economic dilution resulting from the exercise of the warrants for the company's shareholders will be 81.87%," the company said.
Still, it added that the private issuance targets existing shareholders, granting them guaranteed pre-emptive rights in warrant subscription based on their current shareholding proportions. If they chose to exercise these rights and convert all their warrants into shares, their ownership stake in the company would remain undiluted.
Up to 1,891,497,584 warrants are available for subscribing to preferred shares of the company, each warrant permitting the holder to subscribe to one preferred share. Partial warrant ratification is possible, contingent on a minimum of 991,951,681 warrants being subscribed to.
The issuance primarily supports GOL Equity Finance's exchangeable debt transaction, as disclosed on March 3, 2023. GOL's controlling shareholder Abra Group intends to transfer a portion of its pre-emptive rights for warrant subscription to GOL Equity Finance to facilitate this process. GOL Equity Finance has committed to subscribing to all the warrants it becomes eligible for due to this transfer, specifically 991,951,681 warrants.
The warrants are priced at BRL5.84 real (USD1.17) each and must be paid in Brazilian currency upon subscription. The issuance is guided by advice from Evercore Group LLC, and Apsis Consultoria Empresarial Ltda. has provided a fairness opinion on the warrant price calculation. Each warrant entitles the holder to subscribe to one preferred share at an exercise price of BRL5.82 (USD1.16), subject to potential adjustments.
Warrant holders have the option to exercise their rights starting August 18, 2023, until March 2, 2028.
