Analysts cut Air Canada's PT after government agrees on equity stake

April 13 (Reuters) - Air Canada getting a long-delayed government aid package at the cost of a discounted stake sale is bad for the stock, analysts say, though a grant of up to C$5.9 billion ($4.69 billion) should help the airline ride out the COVID-19 pandemic.

Several brokerages cut their price targets for Air Canada on Tuesday after the government agreed to offer financial support and buy a roughly 6% stake in the carrier at a discount of 14%.

“We believe that Air Canada’s access to this capital will prove to be insurance as opposed to necessary liquidity required to finance operations or capital expenditures in 2021 and beyond,” TD Securities analyst Tim James wrote in a note.

James cut the target price on Air Canada to C$29 from C$31, while reaffirming a “hold” rating.

“Our target price declines due to the negative impact of greater short-term cash-burn and the impact of the dilution from the share and warrant issue on the price to equity component of our target,” James added.

The Canadian government on Monday agreed to buy C$500 million worth of shares in the airline at C$23.1793 each.

The agreement - the largest individual coronavirus-related loan that Ottawa has arranged with a company - was announced after the airline industry criticized Prime Minister Justin Trudeau’s Liberal government for dawdling.

Another analyst at Scotiabank also lowered the price target on Air Canada to C$29 from C$31, citing equity dilution.

“We believe some investors could be negatively surprised by equity dilution and a repayable loan for refunds,” Scotiabank Konark Gupta wrote in a note, while reiterating a “sector perform” rating on the stock.

($1 = 1.2589 Canadian dollars)

Reporting by Ankit Ajmera in Bengaluru, Editing by Sherry Jacob-Phillips