Waha Capital rose to its highest level in more than six weeks after the Abu Dhabi leasing firm entered into a US$575 million hedging deal to protect gains made from its investment in AerCap Holdings.
The transaction places a minimum strike price of $42.39 per share and maximum strike price of $61.23 per share on half of its shares held, Waha said in a filing on the Abu Dhabi Securities Exchange yesterday. Waha’s original investment was valued at $13 per share.
The transaction is described as a collar trade, which is an options strategy that controls losses in the event of a fall in the stock price while letting buyers assume more debt to finance a deal.
The transaction provides an additional funding of $575m, which will be used to partially repay existing debt and fund new investment opportunities, Waha said.
This type of derivative arrangement was once common in the Middle East. Notable transactions include Aabar’s acquisition of a stake in Daimler in 2009 to hedge from a steep fall in the stock price.
Shares of AerCap, an aviation leasing firm, jumped 3.6 per cent on Tuesday to close at $49.17 on the Nasdaq exchange. The stock has risen 28.2 per cent so far this year.
“AerCap has done phenomenally well in terms of performance and it makes sense that Waha wants to protect itself from any correction,” said a fund manager who spoke on conditions of anonymity.
“It’s a very smart move. Not only does it put a floor valuation on the company, it also lowers the volatility on some of its investment.”
Shares of Waha rose as much as 4.7 per cent, the highest intraday price increase since July 21.
Waha came under the spotlight globally last year after AerCap, in which the Abu Dhabi leasing firm is a significant shareholder, agreed to buy International Lease Finance from the US insurer AIG for $5 billion. After the hedging transaction, Waha will have a 14.1 per cent ownership in the combined larger entity.
AerCap owns and manages 1,300 aircraft, according to information posted on its website. The company’s customer portfolio includes Etihad Airways, Emirates Airline, Qantas, Aer Lingus, KLM-Air France and British Airways.
halsayegh@thenational.ae
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