AmBank Research: Private placement alone won’t solve AirAsia’s woes

AIRASIA Group Bhd may have earned a lifeline by completing its maiden tranche of private placement but AmBank Research is only mildly positive on the latest development in the budget carrier.

AirAsia recently completed the first tranche of its proposed private placement (of up to 20% new shares) comprising 369.8 million new shares or 11% of its pre-exercise share base at an issue price of 67.5 sen that raised proceeds of about RM250 mil.

Stanley Choi Chiu Fai who took part of the private placement, has emerged a substantial of AirAsia with an accumulated stake of 8.96% or 332.5 mil shares.

Based on the research house’s estimates, the fresh capital shall turn AirAsia’s net debt (including lease liabilities) and net gearing (including lease liabilities) of RM11.8 bil and 10.0 times as of September 2020 to RM11.4 bil and 6.9 times.

“We see it as a stop-gap measure to bring itself back from the brink,” the research house pointed out in a company update.

“Assuming the deal is to be completed, we estimate the new shares will further dilute its (AirAsia) FY2022F EPS (earnings per share) by another 5%, and reduce our fair value to 59 sen based on the same valuation basis.

Described in a media report as “a Hong Kong financier, M&A specialist and professional poker player”, Choi is currently the chairman of the Hong Kong-listed Head and Shoulders Financial Group and International Entertainment Corp.

It is unknown at this point of time if he is just a passive investor in AirAsia or he will bring value to the table, according to AmBank Research.

To recap, AirAsia has proposed a private placement of up to 669.4 million new shares which is equivalent to 20% of its previous share base of 3.34 billion shares at an indicative issue price of 68 sen/share.

It plans to raise proceeds of RM454 mil from the exercise, mainly earmarked for working capital (ie fuel hedging settlement, aircraft lease and maintenance payments, AirAsia Digital’s expenses, etc.).

“Depending on how soon Malaysia and the world at large are to emerge from the pandemic, AirAsia may need to raise more fresh capital, including potentially a debt-to-equity swap for creditors (that is also highly dilutive to its existing shareholders) to ensure its long-term survival,” projected Ambank Research.

All-in, AmBank Research has maintained its “sell” call on AirAsia with a fair value of 62 sen/share.

“While the prospects for the air travel industry and airlines have improved significantly following the large-scale rollout of COVID-19 vaccines globally, we are still mindful of the urgent need for airlines, including AirAsia, to recapitalise their balance sheets,” justified the research house. “For AirAsia, the process has just begun.”

At 2.44pm, AirAsia was up 11.5 sen or 14.11% to 93 sen with 228.33 million shares traded, thus valuing the company at RM3.45 bil. – Feb 23, 2021

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