Private placement a ‘band aid’ for AirAsia’s woes
KUALA LUMPUR: Analysts see AirAsia Group Bhd’s (AirAsia) latest proposal to undertake a private placement of up to 20 per cent of its existing 3.34 billion shares to raise approximately RM454.51 million as just a temporary stop gap to the group’s declining financials.
In a filing with Bursa Malaysia, the budget carrier said the exercise would enhance its financial position with a marginal increase in net assets and improvement in net gearing.
It said gross proceeds would be used for fuel hedging se lement, aircra lease and maintenance payments, and general working capital expenses, among others.
“The private placement is proposed in response to a series of unexpected events outside the group’s control, primarily a ributed to the outbreak of the global Covid-19 pandemic which has created significant challenges for the airline industry.
“Travel restrictions imposed by various governments 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 team with MIDF Amanah Investment Bank Bhd viewed the placement as a step in the right direction for the company. However, it believed the exercise only served as a stop gap measure to partially address AirAsia’s financial concerns.
“Recall that management indicated a conservative estimate that the group capital needs of between RM2 billion to RM2.5 billion to tide them over comfortably until end of FY2021,” it said.
MIDF Research further posited that the group may need to go through a couple rounds of fund-raising exercises, exposing its current shareholders to more potential dilution in the future.
“The worrying level of infections in Malaysia and other AirAsia’s key markets is alarming and dampening the recovery trajectory this year,” it continued.
“Furthermore, with other airline operating certificates under the group in similar distress, it is probable that AirAsia will step in to inject liquidity to maintain capital adequacy. To note, Philippines and Indonesia entities are currently in various stages of bank loan applications.”
Meanwhile, MIDF Research saw that the second movement control order (MCO 2.0) was certainly a ‘gut punch’ to the aviation players, especially a er a dreadful 2020.
This comes as with border control measures pu ing a halt on international passenger traffics, MCO 2.0 will hinder the recovery of domestic passenger traffics.
“However, unlike the ‘doom and gloom’ situations of the first MCO early last year, hope is in the air for aviation players. Currently, with positive development on the vaccine fronts, the recovery narrative can be gauge with be er clarity.
“Furthermore, with governments and businesses are more adept at managing the pitfalls of the virus, we believe punitive measures that hinder air travel will gradually be eased and potentially li ed, slated to be by the second half of 2021.”
This was echoed by Kenanga Investment Bank Bhd (Kenanga Research), who over the medium term, expect AirAsia to face a tough operating environment already derailed by widespread travel disruptions due to Covid19, and hits from lower load factor.
“In an effort to reduce operating expenses, the group has undertaken cost cu ing measures such as right sizing of manpower, salary cuts for management, staff and directors, negotiation of deferrals with lessors, suppliers and partners, and restructuring of fuel hedging positions,” it opined.
“In Malaysia, the group is securing commitments from banks for the government