CGS-CIMB Securities reiterates ‘reduce’ stance on AirAsia

KUALA LUMPUR: CGS-CIMB Securities Sdn Bhd expects AirAsia Group Bhd’s rights issue to be successful as the eight per cent yield is deemed attractive for investors even though the conversion price of 75 sen is not much lower than its current share price.

The airline announced the move on Monday, which entails the issuance of 1.3 billion sevenyear redeemable convertible unsecured Islamic debt securities (RCUIDS) with a nominal value of 75 sen each, on the basis of two RCUIDS with one free detachable warrant for every six ordinary shares held.

The exercise is part of the group’s fundraising strategy and is expected to raise gross proceeds of RM974.5 million.

“The RCUIDS will be issued at a nominal value of 75 sen, with a profit rate of eight per cent per annum and convertible to ordinary shares at any time during its seven-year maturity period at the conversion price of 75 sen.

“More than 85 per cent of the proceeds from the RCUIDS issue will be used for the airline business and for working capital, with 12 per cent set aside to fund the digital businesses,” it said in a note yesterday.

According to CGS-CIMB Securities, AirAsia founders Tan Sri Tony Fernandes and Datuk Kamarudin Meranun had given irrevocable undertakings to subscribe for their total 26.4 per cent proportionate entitlement of the RCUIDS, and half of the remaining RCUIDS would be underwritten.

“Although the remaining 36.8 per cent will not be underwritten, we expect the rights issue to be successful as we think the eight per cent yield is attractive for investors.”

It also believes the issuance of RCUIDS is beneficial for AirAsia shareholders as a whole, compared to a rights issue of new ordinary shares, because the conversion price is most probably higher than any hypothetical rights issue price.

“We reiterate our ‘reduce’ call as the road to recovery is arduous given the surge in Covid-19 cases in Malaysia, Indonesia and Thailand,” it said.

Although the remaining 36.8 per cent will not be underwritten, we expect the rights issue to be successful as we think the eight per cent yield is attractive for investors.

CGS-CIMB SECURITIES SDN BHD