The Regional Express Holdings Ltd (ASX: REX) share price jumped today even the broader market retreated.
The REX share price gained 4.1% to $1.14 in the last hour of trade after it revealed it was close to striking a funding deal that will see it compete directly against Qantas Airways Limited (ASX: QAN) and the recapitalised Virgin Australia.
Regional Express share price on a high
The outperformance of the Regional Express (REX) share price stands in contrast to the 0.5% fall in the S&P/ASX 200 Index (Index:^AXJO). The Qantas share price is also trading 2.2% lower at $3.76 at the time of writing.
Other travel related stocks are also on the nose. The Flight Centre Travel Group Ltd (ASX: FLT) share price lost 4.3% to $12.83 while Webjet Limited (ASX: WEB) share price dived 6.4% to $3.56.
REX share price heading for the big league
Investors are excited about how REX may be transforming into a significant domestic carrier as it services the lucrative Melbourne, Sydney and Brisbane markets.
The airline is a minor player flying between regional towns and under the shadow of Qantas and Virgin before COVID-19.
The pandemic caused a major shake-up of the industry that REX is determined to leverage off – if it can get the cash for its transformation.
Details for the convertible notes
Management signed a term sheet with PAG Asia Capital (PAG) that could see the investment firm pump $150 million into REX via first-ranking senior secured convertible notes.
Should the deal proceed, REX can draw on the first $50 million tranche of the funding at the end of December 2020. Management can draw on the balance over the following three years.
The note can be converted into ordinary REX shares at $1.50 a pop, subject to certain adjustments. If PAG were to convert the first tranche of notes into shares, the funder will own around 23% of REX (based on REX's current share base).
Should PAG convert all the notes, it would hold around 48% of the airline's shares.
Once in a lifetime opportunity
After the first draw down in December, PAG will be entitled to nominate two directors to REX's board.
"PAG is a well-respected and highly successful investment group which manages more than USD40 billion," said REX's chairman Lim Kim Hai.
"With PAG's support, I have every reason to believe that Rex can successfully launch its domestic major city jet operations."
But this isn't a done deal. PAG will need to complete its due diligence and there's the usual formalities that need to be followed. These include shareholder approval and the green light from the Foreign Investment Review Board as well as other regulators.
The Regional Express share price held up relatively well through the pandemic. The stock dipped around 4% since the start of the year when the the QAN share price slumped by nearly half.
