UPDATE 3-TUI bets on emerging markets after shipping exit

Wed Feb 15, 2012 8:16am EST

* Says aims to be close to debt-free by end-Sept

* CEO eyes BRIC countries for new holidaymakers

* Q1 core loss 147 mln eur vs poll avg 146 mln

* Shares rise 5.2 pct

By Victoria Bryan

HANOVER, Germany, Feb 15 (Reuters) - German travel group TUI AG is eyeing a new wave of holidaymakers from emerging countries such as Brazil, Russia, India and China for future growth after setting out plans to get out of the shipping business.

TUI AG, which controls Europe's largest travel group TUI Travel, said a deal on Tuesday to sell part of its stake in shipper Hapag-Lloyd with the option to either float or sell the rest to other investors was an important step in its long-held aims to cut debt and focus on tourism activities.

Shares in TUI were up 5.2 percent at 6.53 euros at 1300 GMT on Wednesday after it said it would be nearly debt-free by the end of September, thanks to the Hapag deal.

Chief Executive Michael Frenzel said TUI would now look at bringing holidaymakers from countries such as China, Russia, Ukraine, India and Brazil to Europe.

Asian and Latin American countries with huge populations offer an untapped source of holidaymakers at a time when the European debt crisis and uprisings in North Africa have deterred consumers in Great Britain and France from taking holidays.

"Organised tourism is only just starting in these countries," Frenzel told the group's annual shareholder meeting on Wednesday, adding that in China alone there were more than 3 million people willing to spend on holidays.

TUI last year became the first European tour operator to win a licence to organise international travel for Chinese holidaymakers, who industry experts expect will overtake Germans as the world's biggest spenders on holidays within the next few years.

Frenzel said TUI would bring its first groups from China to Europe in the summer.

SHIPPING IPO

TUI said while it was looking at all options for its tourism business now it has an exit strategy for the shipping stake, it did not currently plan a takeover of TUI Travel.

Financial market turmoil scuppered TUI's attempts to float and sell its stake in Hapag-Lloyd to investors from Oman and China last year. It said on Wednesday that another plan, to sell a majority stake to a third-party investor, was unlikely to have succeeded in the current volatile environment.

"We will succeed in completing our final exit as soon as the market environment opens up," Frenzel said. TUI may call an IPO of Hapag-Lloyd any time from the end of June, with priority given to placing its remaining shares on the market.

The agreement with Hapag's other majority shareholder will see 700 million euros ($919 million) go to TUI through a combination of a sale of a 17 percent stake and the repayment of hybrid capital lent to the shipper.

Shareholders welcomed the deal but expressed displeasure that the group could not say when it would pay a dividend.

"Old biscuits and no dividend; it's not right," declared one man as he took the stage, holding up one of the offending snacks that were offered to shareholders arriving at the meeting.

Frenzel said the group wished to get into a position where it could pay a sustainable dividend, not a one-off.

As expected, TUI AG reported a wider first-quarter underlying loss before interest, tax and amortisation of 147.3 million euros after political unrest in North Africa affected holiday bookings.

Chief Financial Officer Horst Baier said he expected demand for destinations to North Africa to recover slowly over the course of the year.

Last week, TUI Travel reported a first-quarter operating loss of 109 million pounds ($172 million), but said it had outperformed the wider British market as it had benefited from the problems of rival Thomas Cook, which required emergency funding from banks in November after a string of profit warnings.

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