SAS AB announces preference share issue and considers additional financing measures

Not for release, publication or distribution, directly or indirectly, in or into
the United States, Canada, Japan, Australia or any other jurisdiction where such
action would be prohibited.
The Board of Directors of SAS (”SAS” or “the Company”) has resolved to offer
institutional investors and the general public in Denmark, Norway and Sweden to
subscribe for preference shares in SAS AB for a total amount of approximately
SEK 2 billion (“the Offer”). The proceeds raised will primarily be used for the
continued renewal of the aircraft fleet and to strengthen the financial
preparedness.

The company also intends to issue convertible bonds of up to SEK 2 billion in
close connection with or shortly after, the Offer, provided that the market
conditions are deemed advantageous, as described below. In addition, the company
has entered into a financing agreement with UBS totalling MEUR 150.

Summary of the Offer

  · The Offer, consisting of approximately 4 million preference shares, is
carried out at a subscription price of SEK 500 per preference share
  · Annual dividend yield for the first five years amounts to 10% given the
subscription price above and provided that the annual dividend of SEK 50 per
preference share is distributed during the entire five year period
  · The subscription period runs from 10 February 2014 until 20 February 2014
for institutional investors and from 10 February 2014 until 19 February 2014 for
the general public in Denmark, Norway and Sweden
  · Estimated first day of trading of the preference shares on NASDAQ OMX
Stockholm is 7 March 2014

The Offer is conditional on, inter alia, that the AGM approves the proposed
changes to the Articles of Association and authorises the Board of Directors to
resolve on the issuance of preference shares.

Background and reasons
SAS operates in a highly competitive industry characterized by price pressure
and fluctuating demand, while operations are capital intensive due to recurring
investments in the aircraft fleet. In order to meet the increasingly intense
competition, manage the effects of the revised accounting policies related to
pensions, which threatened to dilute SAS book equity, and to create the
conditions necessary for long-term financing SAS initiated, in the autumn of
2012, the restructuring program 4Excellence Next Generation (“4XNG”).

4XNG focuses on three subareas – costs, flexibility and liquidity/equity. Under
4XNG, SAS has implemented a renegotiation of employee collective agreements that
has led to market adjustment of salary, working and pension benefits as well as
centralized administrative operations. Furthermore, SAS has carried out
substantial savings within IT operations through procurement of new IT-systems
and through the reduction of applications. SAS has increased the flexibility of
its cost base through outsourcing of certain customer service and administrative
operations and the commenced outsourcing of ground handling services. The
flexibility has been increased further through increased possibility of using so
called wet-lease production as a complement to own production. SAS’s liquidity
was strengthened through disposal of assets.

New financial targets were adopted by SAS in conjunction with the launch of
4XNG. These new targets aim to reflect an operation that has reduced its fixed
costs, improved its profitability and strengthened its cash flow. The financial
targets are to reach an operating margin of a minimum 8%, an equity/assets ratio
in excess of 35% and a financial preparedness of over 20%. At the end of the
2012/2013 fiscal year, the market was characterized by reduced growth and
significantly increased capacity in parallel with a decline in the Norwegian
Krona against the Swedish Krona. These conditions are expected to continue and,
accordingly, SAS now expects that the financial targets that were originally
intended to be reached in 2014/2015 will now not be reached until the end of
2015/2016.

Since SAS’s operations are very capital-intensive, SAS works continuously with
optimizing its capital structure to maintain and create the requisite conditions
for the recurring investments in line with maintaining a modern aircraft fleet.
SAS has over the past years completed the fastest modernization of the aircraft
fleet in its history. SAS has phased out aircraft models such as the MD80 and
B737 Classic and phased in Airbus A320 and B737NG, which has led to the SAS
aircraft fleet having increased from 80% to 100% so called next generation
aircraft. SAS has also entered into agreement to purchase additional new
aircraft. Over the next seven years, SAS will invest in a total of 42 new
aircraft comprising 12 long-haul aircraft and 30 short-haul aircraft.

The revised IAS 19 will be applied for fiscal years starting from 1 January 2013
and onwards. As a result of the changes to the Group’s fiscal year, the Group
applies the amended standard for the fiscal year starting 1 November 2013. The
consequences of this mean, amongst other things, that it is no longer permitted
to defer recognition of certain deviations in estimates (the “corridor” approach
has been eliminated) and all deviations in estimates are to be immediately
recognized in other comprehensive income.

Accordingly, the carrying amount of the Group’s book equity at 1 November 2013
declined, in total, by about SEK 7 billion, from about SEK 11 billion to
slightly more than SEK 4 billion. After adjustment for the above, the
equity/assets ratio would have amounted to approximately 15% as of 31 October
2013, which can be compared with the reported equity/assets ratio for the same
date of slightly more than 31%. This nonrecurring effect – which has been long
known – will however not have any significant impact on liquidity.

Based on the accounts as of 31 October 2013, after adjustment for the negative
nonrecurring effect on the Group’s shareholders’ equity from the unrecognized
pension deviations described above and after adjustment for the capital
injection of SEK 2 billion, the equity/assets ratio would be strengthened by
about 7 percentage points.

In light of the above and conditional on, inter alia, the Annual General
Meeting’s approval of the proposed amendments of the Articles of Association and
the authorization for the Board of Directors to resolve on the issuance of
preference shares, the Board of Directors of SAS has resolved to offer
preference shares of approximately SEK 2bn in total.

By issuing preference shares, SAS’s equity position will be strengthened. The
capital injected will primarily be used to strengthen SAS financial ability for
continued renewal of the aircraft fleet with the aim of creating an optimized
fleet for more profitable production, but also to strengthen SAS financial
preparedness and to reduce its dependence on bank financing.

The Offer
The Offer, which includes approximately 4 million preference shares, is divided
into two parts: an offer to the general public in Denmark, Norway and Sweden,
which includes the Company’s current shareholders in these countries (the “Offer
to the Public”), and an offer to institutional investors (“Institutional
Offer”), at an issue price of SEK 500 per preference share [1]. The outcome of
the Offer is intended to be published on 24 February 2014. Payment can only be
effected in SEK. Brokerage commission will not be charged.

The Offer to the Public in Denmark, Norway and Sweden consists of approximately
800,000 preference shares and the Institutional Offer consists of approximately
3,200,000 preference shares. The final allocation between the categories may
deviate from the intended distribution due to reasons including interest from
current holders of ordinary shares in SAS within the Offer to the Public in
Denmark, Norway and Sweden, and the ability to facilitate efficient trading on
NASDAQ OMX Stockholm. In the case of over-subscription current owners of SAS’s
ordinary shares may be prioritised. In such an event, the minimum allotment to
SAS’s ordinary shareholders will be 20 preference shares.

Application for subscription of preference shares shall be made during the
period from 10 February to 20 February 2014 for institutional investors and 10
February to 19 February 2014 for the public in Sweden, Denmark and Norway. If
the Offer is fully subscribed SAS will raise approximately SEK 2 billion in
total, before issue costs which are estimated to amount to approximately MSEK
50.

Following a fully subscribed Offer of approximately 4,000,000 preference shares
the number of shares in the Company will increase by approximately 4,000,000 to
approximately 333,000,000 and the number of votes by approximately 400,000 to
approximately 329,400,000, corresponding to a dilution of approximately 1.2% of
the shares and approximately 0.1% of votes.

The Board of Directors may decide to increase the Offer to include up to 7
million preference shares in total. In such case, the company could raise up to
another approximately SEK 1.5 billion as part of the Offer.

The preference shares in summary
In accordance with the proposal for the amendment to the company’s Articles of
Association that the Annual General Meeting, which is held on 18 February 2014,
is to resolve on, preference shares will have preferential rights, ahead of
common shares (and any subordinated shares), to an annual dividend of SEK 50 per
preference share (“Annual Dividend”) from the issue date. After five years, the
annual preference share dividend will increase by an equivalent one (1)% of the
subscription price per preference share and year until the annual preferential
right to a preference share dividend will total an amount corresponding to SEK
50 plus an additional amount of five (5)% of the subscription price. Dividends
require a resolution by a General Meeting, and that the Parent Company SAS AB
has distributable unrestricted equity. Holders of bonds issued by SAS in
September 2013 have by way of a bondholders’ decision on 6 February 2014
approved an amendment to the original terms and conditions pursuant to which SAS
may propose and pay dividends on preference shares in accordance with their
terms, provided that no event of default is outstanding under the terms and
conditions.

The dividend is paid quarterly by one quarter (25%) of the Annual Dividend, with
the first record date scheduled for 5 May 2014, and is accumulated in the event
that the dividend paid were to fall below the preferential rights entitled by
the preference shares. The preference shares do not carry any other entitlement
to dividends. Each preference share entitles the holder to one tenth of a vote
compared with SAS common shares.

Following a decision by the Board of Directors, the preference shares can be
redeemed, wholly or in part, at an amount per preference share corresponding to
120% of the subscription price until the payment date immediately following the
record date on 5 February 2018 and 105% of the subscription price thereafter, in
both cases with the addition of any amount outstanding per preference share
(“Redemption Price”) and the accrued portion of preference share dividends. In
order for preference shares to be redeemed, the company must have unrestricted
equity to the extent that the Redemption Price exceeds the quota value (Sw.
“kvotvärde”) of the shares.

SAS will apply for listing of the preference shares on NASDAQ OMX Stockholm. The
first day of trading of the preference shares is expected to be on or about 7
March 2014.

Preliminary timetable for the Offer

Prospectus made public                7 February 2014
Subscription period for the     10 – 19 February 2014
public in Denmark, Norway and
Sweden
Subscription period for         10 – 20 February 2014
institutional investors
Annual general meeting               18 February 2014
Announcement of outcome              24 February 2014
Settlement date                      28 February 2014
First day of trading on NASDAQ           7 March 2014
OMX Stockholm

Convertible bonds
In addition to the proposals aimed at facilitating the Offer, the Board of
Directors has proposed that the Annual General Meeting authorize the Board of
Directors to resolve on a convertible bond issue, with deviation from
shareholders’ preferential rights, for a maximum amount of SEK 2 billion, which
may not exceed 130 million common shares upon conversion, aimed at refinancing
the outstanding convertible bond amounting to SEK 1.6 billion.

Provided that the authorization is obtained, the Board of Directors intends to
carry out an issue of five year unsecured convertible bonds in close connection
with or shortly after the Offer, at a rate of interest and conversion premium to
be set at market terms and determined through a book-building carried out at
launch. The final decision to launch a convertible bond is subject to favourable
market conditions.

Bilateral facility with UBS and cancellation of RCF
SAS has entered into a EUR 150 million financing agreement with UBS AG, London
Branch. This financing agreement will be made available for utilisation on 28
February 2014 and will be available to SAS until January 2017. The interest rate
is variable and based on prevailing market conditions including SAS’s
creditworthiness. This agreement is subject to, amongst other things, customary
undertakings (including negative undertakings) and terms.

Following completion of the Offer, the current revolving credit facility due
2015 will be cancelled.

The Annual General Meeting
SAS’s Annual General Meeting will be held on 18 February 2014 when the Board of
Director’s proposal for authorisation to issue convertible bonds and preference
shares and required amendments to the articles of association, will be
considered.

Of SAS’s four largest shareholders, the Swedish government, the Danish
government and the Knut and Alice Wallenberg Foundation have expressed that they
are positive towards voting in favour of the Board of Directors’ proposals to
the Annual General Meeting. The Norwegian government has declared that it is
positive to SAS gaining an increased flexibility to raise hybrid capital (in the
form of preference shares and convertible bonds), and have petitioned the
necessary authorizations from the Norwegian parliament in order to allow for
voting in favour of the proposals at the AGM on 18 February. Together, these
four shareholders hold approximately 57.6% of the outstanding shares and votes
in the company.

Advisors
Carnegie Investment Bank AB (publ), Nordea Bank AB (publ), Markets – Investment
Banking and SEB Corporate Finance, Skandinaviska Enskilda Banken AB are acting
as financial advisors, Joint Lead Managers and Joint Bookrunners for the Offer.

JP Morgan is financial advisor as regards the potential convertible bond issue.

Mannheimer Swartling is legal advisor.

Telephone conference
A telephone conference (in English) will be held today at 10.00 CET. The
conference call will be available as a webcast on the SAS website
www.sasgroup.net under Investor Relations. A replay of the conference call will
be available on www.sasgroup.net under Investor Relations.

For additional information:
Press Office telephone: +46 8 797 2944

SAS Group Investor Relations
SAS discloses this information pursuant to the Swedish Securities Market Act
and/or the Swedish Financial Instruments Trading Act and the corresponding
Danish and Norwegian legislations. The information was provided for publication
on 7 February 2014 at 07.30 CET.


IMPORTANT INFORMATION

The information in this press release is not an offer to acquire, subscribe or
otherwise trade in preference shares or other securities in SAS. Any invitation
to the persons concerned to subscribe for preference shares in SAS will only be
made through the prospectus that SAS expects to publish on or about 7 February
2014.This press release may not, directly or indirectly, be released or
published in or distributed to or within the United States, Canada, Japan,
Australia or any other jurisdiction where such action would require additional
prospectuses, filings or other measures in addition to those required under
Swedish law. The Offer is not made to, and application forms will not be
approved from, share subscribers (including shareholders), or persons acting on
behalf of share subscribers, in said countries or persons in any other
jurisdiction where applications for the subscription for preference shares would
contravene applicable laws or regulations, or would require additional
prospectuses, filings, or other measures in addition to those required under
Swedish law. Nor may the information in this press release be forwarded or
reproduced in any way that would violate such restrictions or would give rise to
such requirements. Measures in violation of the restrictions may constitute a
breach of relevant securities legislation.

No shares paid and subscribed for nor preference share issued by SAS
(“Securities”) have been registered, and will not be registered, under the
United States Securities Act of 1933 (the “Securities Act”) or the securities
legislation of any state or other jurisdiction in the United States, and may not
be offered, pledged, sold, resold, delivered or otherwise transferred, directly
or indirectly, within the United States or to U.S. persons as defined in
Regulation S under the Securities Act (“Regulation S”). The Securities are being
offered outside the United States in reliance on Regulation S. There will not be
any public offering of Securities in the United States or to U.S. persons. This
press release may contain forward-looking statements that reflect SAS current
view of future events as well as financial and operational development. Words
such as “intend”, “assess”,”expect”, “may”, “plan”, “estimate” and other
expressions involving indications or predictions regarding future development or
trends, not based on historical facts, identify forward-looking statements.
Forward-looking statements inherently involve both known and unknown risks and
uncertainties as they depend on future events and circumstances. Forward-looking
statements do not guarantee future results or development and the actual outcome
may differ materially from forward-looking statements.

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[1] The subscription price in the Offering has been determined by the Company’s
Board of Directors, in consultation with and by recommendation from Carnegie,
Nordea and SEB, based on the assessed demand from institutional investors after
a form of book-building carried out during the period from 27 January to 4
February 2014.