fastjet announces 1 for 10 share consolidation

Low-cost African airlines (LON:FJET) is to instigate a share consolidation that should enable it to continue raising funds via its equity financing facility.

The plan is for shareholders to trade in their existing ordinary shares for interim ordinary shares, on the basis of 10 existing shares for every one new interim ordinary share. Immediately thereafter, the interim ordinary shares will be subdivided and converted into one new ordinary share price, with a nominal value of 1p, and one “B” deferred share with a nominal value of 9p each.

The deferred shares will not be listed or traded on AIM, and will not be transferrable without prior written consent of the board. They will not carry any voting rights or entitlements to receive dividends, and are, in effect, valueless, having been created purely for book-keeping purposes.

For shareholders, the nominal value of the shares is of no import, and should not be confused with the market price of the shares; for the company, however, the nominal value of a share is significant because company law prevents a company from issuing shares at a price that is lower than the nominal value.

Although the share price of fastjet has perked up considerably of late (+27.41% last week alone) following a stream of positive developments for the company, there have been periods in the company’s brief but eventful stock market history when the share price has traded below the 1p nominal value of the shares.

All other things being equal, a one for ten consolidation should result in a tenfold increase in the underlying share price (while leaving the nominal value of the shares unchanged at 1p), thereby ensuring that fastjet is free to issue shares above their nominal value to fund its medium and longer-term expansion plans.

As well as giving the company a lot more leeway in terms of share issuance, the company believes that having a higher share price should result in share price movements being less volatile in percentage terms in future. In addition, the directors believe that the bid-offer spread at current share price levels can be disproportionate, to the detriment of shareholders.

The share price of fastjet has strengthened considerably since the company achieved a breakthrough in securing the rights to operate a route between Tanzania and South Africa. Traffic statistics for June and July were also very encouraging.