Chile: Latam shares drop 18% after Deutsche Bank says minority shareholders could lose all

RIO DE JANEIRO, BRAZIL – Days before Latam unveils its reorganization plan, the airline’s shares fell 18% on Wednesday (24) after a Deutsche Bank report said that minority shareholders could lose everything, in the midst of its restructuring under Chapter 11 of the US Bankruptcy Law.

As detailed in the document, which was published by El Mercurio Inversiones, the bank lowered its target price for the ADR from US$2 to US$0.01 per unit, after increasing its projected loss for 2021 from US$1.697 billion to US$2.152 billion.

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The bank also changed its recommendation from hold to sell and forecasts a 98% drop for existing shareholders.

Deutsche Bank said in its report that a total loss for current shareholders of a company in the situation of Latam Airlines, “is not atypical and we can count on one hand (i.e. five airlines) in bankruptcies (out of more than 100) where shareholders received some consideration under the reorganization plan.”

The bank clarified that “our rating change is not a projection of the restructuring plan, given that we believe it is succeeding, but rather it is a call on what we believe will be little or no consideration for current shareholders once the company emerges from the bankruptcy process (we are estimating that will be in early 2022).”

According to Guillermo Araya, research manager at Renta 4, Latam’s declines are progressive over time, due to high uncertainty about the future of retailers.

“We estimate that although with low probability, the disposal of shares is not 100% ruled out and although Chilean lawyers estimate that it does not conform to Chilean law and as Latam is domiciled in Chile it would not be possible, it is most likely that an intermediate solution will be reached. That said, our recommendation is to leave Latam,” he said.

The airline’s exclusivity period for presenting its reorganization plan expires on November 26. And, according to sources linked to the process, during the last few days Latam’s senior management has been in intense negotiations with those interested in financing this.