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Shares fall on dilution fears

Air Canada (TSX:AC.B) shares fell nearly 18 per cent in trading Wednesday as investors expressed concerns about a $260-million equity offering by Canada’s largest airline.

MONTREAL — Air Canada (TSX:AC.B) shares fell nearly 18 per cent in trading Wednesday as investors expressed concerns about a $260-million equity offering by Canada’s largest airline.

The airline’s class B shares dropped 33 cents to $1.51 on 1.5 million shares traded on the Toronto Stock Exchange.

The financing will dilute the existing share pool and create an overhang as Air Canada issues 160.5 million units made up of shares and warrants at a price of $1.62 per unit.

Air Canada currently has about 100 million shares outstanding.

Airline analyst Jacques Kavafian of Research Capital Corp. called the agreement “opportunistic” for Air Canada, which has struggled to consistently generate cash.

“It’s very good for Air Canada because they’re getting more money,” he said, adding he can’t find any reason why anyone should own the stock.

Kavafian warned against reading too much into the deal and said it doesn’t indicate the airline faces new troubles it needs to brace for.

“The investment bankers probably went to them with a cash offer and they took it. Just like WestJet (TSX:WJA), Transat (TSX:TRZ.B). Someone shows you money, you take it.”

WestJet has $800 million in the bank and still raised $170 million more. Transat raised $63.5 million.

The share overhang could depress Air Canada’s share price since 200,000 shares are typically traded on a good day.