With the board of airline Regional Express (ASX: REX) placing the company in voluntary administration, Hong Kong-based private equity firm PAG Asia Capital has been drawn into the spotlight.
In January 2021, PAG provided a debt facility of $150 million to Rex via convertible notes to support the company in its attempt to break into the major routes between Melbourne, Sydney and Brisbane.
The failure of that venture led to the announcement on Wednesday (31 July) that the Board of Rex Group had placed the holding company, and four of its wholly owned subsidiaries, into voluntary administration.
PAG’s convertible notes had an initial term of five years and entitled PAG to 4% a year interest plus the right to convert the notes to equity at $1.50 a share.
PAG was also entitled to two Rex board seats.
With Rex shares trading at 56 cents before the company entered a trading halt on Monday (29 July), PAG would have to realise a substantial loss to convert its loan funding to equity; but that could be necessary if it wants to control what happens to the company.
EY Australia administrators Samuel Freeman, Justin Walsh and Adam Nikitins announced on Wednesday that Rex’s regional routes, served by Saab 340 propeller aircraft, were currently unaffected by the administration and would continue to operate. Domestic Boeing 737 jet services were grounded but competitor Virgin Australia was offering impacted Rex customers free-of-charge rebooking.
Rex and Virgin Australia were also exploring opportunities to support regional customers including Virgin Australia selling Rex’s regional services through codeshare or interline arrangements and making Velocity Frequent Flyer benefits available to Rex’s regional customers.
PAG’s earlier investments in Australia included property services company DTZ alongside TGP Capital, and Ontario Teachers’ Pension Plan, in 2014; franchise chain The Cheesecake Shop, 2017; and integrated quick service restaurant operator Craveable Brands, 2019.
PAG exited The Cheesecake Shop to Melbourne investment firm River Capital in 2022 for an undisclosed sum.
Last year, PAG acquired KKR’s 80% interest in Australian Venue Co, the country’s second largest pubs, bars and restaurants business, for an undisclosed sum, estimated at $1.4 billion.
Caption: Rex’s Saab propellor aircraft are still flying regional routes.