The media reported on February 7, 2007 that Sibir Airlines will soon place a bond issue worth just short of $90 mln. In our opinion, this decision is part of Sibir top management's hidden agenda to impair the appeal of the company's assets ahead of an auction to sell the state's stake and ensure further financing of an aggressive price war on the Russian air services market.
We believe that this bond issue could adversely impact the fundamental investment appeal of the company. Sibir's net debt now tops $150 mln and will approach $240 mln after the bond placement which is the bulk of the company's current $340 mln market capitalization. Given that Sibir's EBIT margin has been steadily in the red recently, we are doubtful that the company will be able to service this enormous debt on its own.
However, despite the possible repercussions of the upcoming bond issue, we maintain our Neutral outlook on Sibir stock with target price of $3,400, at least until the FY06 financial statement is released.
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