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Adria Airways Endorses Capital Hike, Agreement With Banks Elusive

Brnik, 31 August (STA) - The shareholders of flag carrier Adria Airways endorsed on Wednesday a capital injection envisaging a conversion of EUR 38.4m of creditor banks' claims into ownership stakes and a EUR 50m state bailout. However, there is still no agreement with banks on the amount of claims to be converted.

The creditor banks still have to agree on the proposed conversion of 50% of claims to the debt-ridden airline or to another percentage of claims to be converted. An agreement is expected to be confirmed at another shareholders' meeting.

"The fact is that an agreement with the bank has still not been reached, but the two sides managed to near their positions," Adria Airways executive director Klemen Bostjancic told the press after the meeting in Brnik.

An agreement with the creditors should be reached by the end of next week, according to him. A shareholders' meeting is to follow, expectedly in mid-September, to confirm the potential changes to the planned capital increase.

Slovenia's biggest bank NLB, the biggest creditor of Adria Airways, is expected to convert EUR 27.67m of its claims, followed by Unicredit banka Slovenija with EUR 2.5m, Hypo Alpe Adria Bank with EUR 4.17m, Abanka Vipa with EUR 3.36m and Gorenjska banka with some EUR 700,000.

Bostjancic commented on media reports that the banks had proposed the conversion of 25% of their claims into ownership stakes, saying that each bank had its own view and that these views had to be brought closer together.

In any case, a capital injection must be carried out by 30 September, which is the day when the creditors expect an injection of fresh capital and repayment of debts. "This deadline could be moved only by a day or two," Bostjancic stressed.

Matej Golob Matzele, the head of the state-owned PDP restructuring fund, an 86% owner of Adria, believes that a capital injection is feasible by then. The government will again decide on the amount of state bailout because of the different amounts of converted claims, he added.

Other options are debt restructuring or receivership, which would mean that the company would be stripped off its licence. "If debt restructuring or receivership is declared, Adria will ground its airplanes soon after that," Bostjancic admitted.

The government confirmed the aid for the flag carrier in June, under which it would provide EUR 49.5m, while the remaining EUR 0.5m would come from the PDP. The government tied the bailout to the banks carrying their share in the restructuring.

Aside from the questionable readiness of the banks, the bailout is also on shaky ground in view of the ongoing political crisis in Slovenia, as the supplementary budget earmarking the money for the injection may not get through parliament.

Adria Airways plans to follow up the financial restructuring with other austerity measures, including cutting of operating costs, stabilisation of operations and abandoning non-profitable routes, which would also mean cuts in the number of aircraft and staff.

Because of the poor results, the shareholders failed to grant discharge of liability to the previous and current management today.

The PDP also reportedly demanded at the meeting an extraordinary audit of certain deals in the last five years. If the audit shows no irregularities, the shareholders will again decide on discharge of liability, Golob Matzele said.

The company is expected to post a EUR 10m loss this year and then break even in 2013.

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