The highly-anticipated cash call from AirAsia Group Bhd has received different reactions from analysts. Some are supportive of the mechanism involved, while others opined that the RM1.02 billion proceeds is not enough to support its cash flow requirement.
When it announced the fund raising exercise on July 12, AirAsia said it intends to secure the undertakings from the co-founders (Tony Fernandes and Kamarudin Meranun), who control 26.4% in the company and have the right to subscribe to RM257.27 million or 25.1% of the intended RM1.02 billion fund-raising. Concurrently, AirAsia is also seeking to secure underwriters for half of the rights issue not to be subscribed by the duo – representing RM358.62 million or 35% of the total fund-raising.
To recap, AirAsia has proposed a rights issue of two redeemable convertible unsecured islamic debt securities (RCUIDS) at 75 sen apiece for every six AirAsia shares held. The seven-year RCUIDS comes with a free warrant for every two RCUIDS subscribed.
Shares of AirAsia fell five sen or 5.65% to 83.5 sen the day after the announcement, valuing the group at RM3.24 billion. PublicInvest Research in its note maintains its concerns over the budget airline’s balance sheet weakness, even after taking into account the expected cash call, with target price of 19 sen per share. Notably, AirAsia had negative shareholder equity as at end-March 2021.
Whether the proposal is positive for shareholders depends on whether one buys into the recovery trajectory, and whether the low-cost carrier will be able to secure the rest of the funding required to support its operations through other borrowings or more placements in the future.
It’ll take until 2024 for international air travel across the region to reach pre-virus levels, according to the International Air Transport Association. Similarly, consultancy Energy Aspects says jet fuel consumption will reach pre-pandemic volumes only in 2023-2024.
In addition, a resurgence of Covid-19 new cases have been recorded not only in AirAsia’s home market in Malaysia, but also in all its other markets. Indonesia and Thailand are seeing new cases at record high, while Japan is also seeing another uptick. Across the region, cases are also rising in countries like Vietnam, Cambodia and the Philippines.
Vaccination rates have also been slower. Aside from Singapore, Cambodia and Malaysia, other key AirAsia markets in ASEAN are lagging behind, which may contribute to slower-than-expected reopening of borders and slower return to normalcy. Safe to say that the third quarter of 2021 is not when planes will fly again.
With RM336 million raised from past private placements and as much as RM1.02 billion from the latest rights issue, that leaves another RM1.14 billion to be raised by the company to support its operations.
In its recent press release on the cash call, AirAsia said “it is also well progressed in discussions to secure a number of other fundraising initiatives”. Fernandes, in his last interview with The Edge three months ago, had expected to secure RM1 billion in loans from three Malaysian banks, pending approval from local regulators under the Danajamin guarantee scheme.
However the RM2 billion to RM2.5 billion fund-raising proposed by AirAsia at the onset of the pandemic only saw funding until end-2021 – although some think the proceeds may last longer. This is considering AirAsia has reduced its cash burn rate to around RM29 million per month.
In the meantime, AirAsia is also seeking to raise US$300 million (RM1.26 billion) from a potential listing of AirAsia Digital in the US. The group is also in discussions with other suitors, including Malaysian and Indonesian private equity.
Indeed, AirAsia had been profitable most of the time since its listing in 2005, with dividends issued throughout the last decade – including two years of bumper dividends in FY18 and FY19 totalling RM1.54 per share.
Comparatively, a new capital injection of RM1.50 for every six shares held seems like a bargain. Can AirAsia secure all the financing needed for the next six to nine months? And will the aviation sector rebound by then? Borders will have to be reopened before everyone can fly again. (Wonder what is happening to MAS?).
Source: www.thestar.com.my
References:
Many loose ends after AirAsia’s rights issue, Adam Aziz, TheEdgeMarkets, July 14, 2021
Asia’s air travel may take three years to recover from Covid-19 pandemic, Elizabeth Low (Bloomberg), CEO Morning Brief, July 16, 2021
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