Hong Kong-based alternative investment management firm PAG has entered into an agreement to invest up to A$150 million ($107 million) in Australian airline Regional Express Holding Ltd (Rex) to support the launch of the firm’s jet services between major cities, said Rex on Tuesday.
The airline said that it had signed a long-form term sheet with PAG on Monday and planned to draw on an initial convertible note tranche of A$50 million ($36 million) by end-2020, with the balance drawn over the next three years.
The notes would be convertible at A$1.50 ($1.07) per share, which compares with Rex’s closing price of A$1.12 ($0.80) on Tuesday. PAG would hold a 23 per cent stake in the Australian airline upon the exercise of the initial tranche and a total 48 per cent stake if the full amount was transacted and converted.
Upon the completion of the deal, PAG would be entitled to nominate two directors to the Rex Board.
The new funding would help Rex commence domestic jet operations in March 2021 in what it had described as “the next big chapter” in the company’s history, which would see the Australian regional airline compete directly against major airlines, Qantas Airways and Virgin Australia.
Formed in 2002, from the merger of Australian air carriers Hazelton and Kendell, Rex is a regional airline operating a fleet of 60 Saab 340 turboprops with 30-36 seats. The firm delivers about 1,500 weekly flights to 59 destinations throughout all states in Australia.
In addition to the regional airline Rex, the firm comprises wholly-owned subsidiaries, namely Pel-Air Aviation, an air freight service, aeromedical and charter operator, and two pilot academies Australian Airline Pilot Academy in Wagga Wagga and Ballarat, respectively.
Rex will offer consumers “an alternative major city domestic service that is safe, reliable and affordable,” said the firm’s executive chairman Lim Kim Hai in a statement. “Rex’s affordable fares will support Australia’s economic rebuild and recovery efforts.”
Founded in 2002, PAG was initially known as Pacific Alliance Group until it was rebranded as PAG in 2010. The company is an Asia-focused alternative investment management firm that manages $40 billion on behalf of over 150 institutional investors from Europe, North America, Asia, Australia, and the Middle East. It has a team of more than 200 investment professionals in nine key offices in Australia, Asia, and the rest of the world.
With a focus on private equity, real estate, and absolute return strategies, PAG had invested in quick-service restaurant operator Craveable Brands, specialty retailer The Cheesecake Shop, and integrated property services firm DTZ.
DealStreetAsia had learnt in early 2019 that the firm targeted to raise up to $1 billion for its third special situations fund, PAG Special Situations Fund III, to make realty investments in markets including Australia, New Zealand, China, Japan, Southeast Asia, and South Korea.
The fund recently received capital commitments from US pension fund San Francisco Employees’ Retirement System (SFERS).