New rights issue a move to save AirAsia

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The latest development was within its expectations that a massively dilutive cash call is inevitable given AirAsia’s damaged balance sheet in the aftermath of the pandemic.

KUCHING: Budget airline, AirAsia Group Bhd (AirAsia) has proposed to undertake a renounceable rights issue of up to RM1.024 billion in nominal value of seven-year redeemable convertible unsecured Islamic debt securities (RCUIDS) with a nominal value of RM0.75 each on the basis of two RCUIDS with one free detachable warrant for every six ordinary shares held.

The exercise is expected to raise gross proceeds of between RM615.9 million and RM1.024 billion, it said in a filing to Bursa Malaysia today.

AAGB said the proceeds would be utilised, among others, for fuel hedging settlement; aircraft lease and maintenance payments; general working capital; and for AirAsia Digital Sdn Bhd’s business units.

“The proposed rights issue is undertaken in response to a series of unexpected events outside the Group’s control, primarily attributed to the outbreak of the global Covid-19 pandemic which has created significant challenges for the airline industry.

“Travel restrictions imposed by various governments across the globe have led to significantly reduced inbound and outbound passenger traffic for the Group and uncertainty over the Group’s future prospects and operations,” it said.

The RCUIDS provides an opportunity to the Entitled Shareholders to subscribe to unsecured equity-linked debt securities with an attractive profit rate of 8.0 per cent per annum.

The research team at Public Investment Bank Bhd (PublicInvest Research) viewed this fund raising exercise as inevitable to address the near-term cash flow requirement of the group in response to travel restrictions due to the resurgence of Covid-19.

“We understand this proposed rights issue serves as an interim measure to address the group’s current financial concerns as management continues to explore other available options and/or corporate proposals to improve its capital structure and further strengthen its balance sheet,” it commented yesterday.

AmInvestment Bank Bhd (AmInvestment Bank) said the latest development was within its expectations that a massively dilutive cash call is inevitable given AirAsia’s damaged balance sheet in the aftermath of the pandemic.

“The proceeds will come in handy to sustain its business temporarily,” it said. “The prospects for the air travel industry and airlines, including AirAsia, have improved significantly following the large-scale rollout of Covid-19 vaccines in Malaysia globally.

“However, depending on how long more it takes before travelling restrictions ease and international borders reopen, it is still difficult to tell if AirAsia will emerge from the current crisis.”

MIDF Amanah Investment Bank Bhd (MIDF Research) posited that significant level of underwriting arrangements are needed to raise more than gross minimum level of subscriptions.

“The attractive profit rate is a good bait, but nevertheless, there is still some potential for slower than expected take-up on the rights issue. The real worry is that the exercise will not fully address the current financial problems of AirAsia to meet its long-terms cash flow need,” it added.

“As the management guided, the proposed exercise will serve an interim measure for the group cash flow challenges. Despite this, we want to applaud for the exercise, as the management is mightily trying to secure the future of the company.

“We think that there is high possibility of more news flows will reach the shareholders in the near term especially on more fundraising (e.g. Danajamin) and capital restructuring plan.

“Hence, the shareholders will have more visibility before deciding on their investment course. Impact wise, the proposed exercise will increase the share base significantly with additional interest cost of up to RM80 million.”