Waiting game looms for AirAsia shareholders

COMMENT by Lya Rahman

SO, pressure is mounting for both AirAsia Group Bhd executive chairman Datuk Kamarudin Meranun and CEO Tan Sri Tony Fernandes to step down from the budget carrier’s board pending the recent US$50 mil (RM205 mil) Airbus bribery probe by Malaysian authorities.

This is on top of the duo’s voluntary relinquishment of their executive positions (re-designated as non-independent non-executive board members) with immediate effect for a two-month period on Feb 3 to enable the company’s Non-Executive Independent Board Committee to review and act against the bribery allegations against them.

AirAsia’s sister airline, AirAsia X Bhd, which is also implicated in the bribery allegation has also formed a similar committee to take any necessary action based on its review which includes the appointment of an independent expert.

In fact, the AirAsia board should also consider appointing an independent expert to conduct the review by following the footstep of Colombian airline Avianca Holdings SA which has appointed an independent law firm to conduct internal investigation into the carrier’s relationship with Airbus.

While I welcome the boards of both airlines to conduct reviews onto the bribery allegation, one cannot help but feel that both Kamarudin and Fernandes should emulate the precedent set by retired banker Datuk Seri Nazir Razak who opted for a voluntary leave of absence from his role as CIMB Group Holdings Bhd group chairman in April 2016.

Without their assuming board presence, in whatever capacity, during the course of internal investigation is crucial to erase the perception of a possible interference by the implicated directors.

True to the saying of Confucius, “a gentleman would be ashamed should his deeds not match his words”, my personal reckoning is that both Kamarudin and Fernandes – being highly revered individuals in society – should step aside entirely during the internal review period.

Serious allegation

Recall the reference of Kamarudin and Fernandes as “AirAsia Executive 1” and “AirAsia Executive 2” respectively in the graft allegation which brings back the memory of “Malaysian Official 1” – a reference to former prime minister Datuk Seri Najib Razak – during which the US Department of Justice filed a lawsuit to seize assets bought with more than US$3.5 bil that was stolen from national wealth fund 1Malaysia Development Bhd.

In this era of social media with news travelling at the speed of light – although truth often gets jumbled up with untruth in the process – investors are pretty aware that “leaves simply won’t move without wind” (the Malaysian version of no smoke without fire).

Henceforth, denial alone won’t do justice to an allegation coming from a reputable body such as the UK’s Serious Fraud Office.

That the AirAsia saga has generated quite a gargantuan interest from three major Malaysian authorities – which is rather a rarity – reflects the severity of the case.

It has come under the lenses of the Securities Commission (SC) which will scrutinise all available evidence to determine if there was any breach of securities laws.

Under Section 317A of the Capital Markets & Services Act 2007 (CMSA), a director of a public listed company (PLC) who does anything with the intention of causing wrongful loss to the PLC or its related corporation commits an offence which is punishable with imprisonment and fine.

Earlier, the Malaysian Anti-Corruption Commission (MACC) chief commissioner Latheefa Koya said the anti-graft agency is in touch with the UK authorities and is already investigating the matter.

Also joining the fray as the third authority to investigate both airlines is the Malaysian Aviation Commission (Mavcom) which would assess whether there is any contravention of the Malaysian Aviation Commission Act 2015 and the commission’s Guidelines on Fit and Proper Person.

Being holders of air service licences issued by the commission, the key responsible persons of both airlines are subject to the Act and the guidelines, according to Mavcom.

As a whole, I see this as a “small victory” for corporate Malaysia insofar as the quest to uphold corporate governance and transparency is concerned.

Even anti-corruption watchdog Transparency International Malaysia (TI-M) has lauded AirAsia board’s move to launch independent investigations into the bribery allegations involving AirAsia and AirAsia X.

Biting the bullets

Elsewhere, I am of the opinion that a credible individual should be appointed in place of Tharumalingam Kanagalingam a.k.a Bo Lingam as AirAsia’s acting CEO in the interim considering that our country has been seriously upholding integrity by combating corruption.

This is because Fernandes, Bo and a few other AirAsia officials had been implicated in connection with a money laundering case in 2018 in India.

Recall that India’s Enforcement Directorate had recently summoned Fernandes and a few other AirAsia officials for questioning over allegation of trying to manipulate government policies through corrupt means to get an international licence for its Indian venture, AirAsia India Ltd.

The probe was initiated on the basis of ousted Tata Sons Ltd chairman Cyrus Mistry’s allegations that fraudulent transactions of 220 million rupees (RM12.6 mil) involving non-existent entities in India and Singapore were carried out in an instance involving AirAsia.

On the same note, I hope the statement made by Prime Minister Tun Dr Mahathir Mohamad relating to “offset payments” which was subsequently clarified by the Prime Minister’s Office that he did not suggest the allegation of bribery against AirAsia executives was “offset payments” would not in any way influence the outcome of investigations being conducted by the internal committees of AirAsia and AirAsia X or the three authorities comprising the SC, MACC and Mavcom.

The investigation should be carried out independently in an expedient manner without fear or favour.

Among the issues that should be addressed are whether the transactions linked to the bribery allegation had been made known to any of the board members of AirAsia and AirAsia X at that time? Or were they carried out with the blessings of any of the board members?

If the answer is “yes” to any of the two questions, the board members who had been made aware of the transactions should also be held accountable in the scandal and be barred from participating in the internal investigation.

Bleeding investors’ pocket

Very broadly, I attribute the problems affecting AirAsia today to failure of corporate policy especially when a company has a head honcho who is highly charismatic, witty and ambitious. It would be difficult to strictly enforce the “no outside interests” rule in the event that a conflict of corporate and personal interests abound.

When bad news broke, investors regardless of their size of shareholding would resort to “share dumping” – most foreign funds/institutional investors have zero tolerance with regard to ethical issues to safeguard their reputation.

Even research houses are now wary over the short-term uncertainties of AirAsia after factoring in the impact of the Covid-19 outbreak on the airline industry.

“… we choose the ‘sell first, ask questions later’ approach to avoid the uncertainty in association with the corruption investigation by MACC, where the impact on AirAsia could be significant in terms of corporate governance issue,” observed TA Securities Research in a Feb 3 research note.

What is unfortunate is that it would be inadvertent for many retail investors (especially newbies) to get caught with their pants down. – Feb 13, 2020

 

*The views expressed in the article represent the views of the writer and do not necessarily represent the official views of the Institutional Investors Council of Malaysia (IICM).

Lya Rahman is the adviser to the IICM and was the former general manager of the Minority Shareholders Watch Group. She can be reached at [email protected]

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