AirAsia moves ahead with recapitalisation of Indonesia AirAsia
KUCHING: AirAsia Bhd (AirAsia) will be moving ahead with the recapitalisation of its 49 per cent owned associated Indonesia AirAsia (IAA).
In a recent filing with Bursa Malaysia, AirAsia’s board of directors after due consideration have approved of the purposed subscription of RM1014 million nominal value of perpetual capital securities issued by IAA at 100 per cent of its nominal value.
The exercise is comparable to a cash injection for IAA and its purpose is to lift IAA out of its current negative equity position of RM1.2 billion.
The move is also to comply with a directive issued by the Directorate General of Civil Aviation of Indonesia (DGCA), of which failure to do so may result in a suspension of IAA’s operations.
AirAsia’s future source of return from this exercise will mainly be in the form of interest, but the ability of IAA to pay interest will be dependent on several factors, such as its operating results, cash flow position, capital commitments, working capital requirements as well as covenants in its future loan agreements.
Due to IAA’s highly competitive environment, its performance will significantly depend on how effectively it can compete with other airlines in Indonesia. Overall, there are some clear risks for AirAsia in the participation of this exercise due to uncertainty of IAA’s long term prospects and performance.
However, the research arm of
IAA is expected to be profitable in 4QFY16, helped by strong demand due to year-end holidays and an improvement in average fares MIDF Research
MIDF Amanah Investment Bank Bhd (MIDF Research) was rather optimistic on IAA’s performance, nothing that the group is showing encouraging signs of a turnaround, such as the significant reduction of third quarter 2015 (3QFY15) losses of RM26 million to 3QFY16’s loss RM3.3 million.
“IAA is expected to be profitable in 4QFY16, helped by strong demand due to year-end holidays and an improvement in average fares,” opined the research arm.
As AirAsia would be recognising a 49 per cent share of IAA’s profits or losses under the equity method, the research arm beliebes that AirAsia would likely be seeking to recoup its investment in IAA via an Initial Public Offering (IPO), in the near future.
The research arm maintains its ‘Buy’ call on AirAsia with a target price of RM3.45, which is pegged to a forward price-earnings multiple of 8.5 fold FY17 earnings per share.