Capital A’s proposed aviation business divestment a positive move
KUCHING: Capital A Bhd’s (Capital A) proposed divestment of its aviation business to AirAsia X Bhd (AAX) garnered positive views from analysts as the move should lift the group out of the Practice Note 17 (PN17) status.
On Thursday, Capital A announced that it has entered a conditional share sale and purchase agreement with AirAsia Group Sdn Bhd (AAG), following AirAsia X Bhd (AAX) internal reorganisation.
AAG will assume the listing status of AAX prior to the completion of the proposed disposals, to divest AirAsia Bhd (AAB) and AirAsia Aviation Group Ltd (AAAGL) for a total disposal consideration of RM6.8 billion.
According to a report by the research team at Kenanga Investment Bank Bhd (Kenanga
Research), the divestment entails selling AAAGL for RM3 billion via issuance of 2.307 billion new AAG shares at an issue price of RM1.30 per share, and selling AAB for RM3.8b via a debt settlement which is AAG assumption of Capital A’s debt due to AAB.
It said, the group will undertake a pre-completion intercompany debt adjustment in which it will assume AAAGL’s debt to AAB and subsequently AAAGL debt shall be entirely set off against cash dividend to be declared by AAB to the group.
Based on the issue price of RM1.30, the group is expected to retain approximately 673 million AAG shares or 18 per cent of the enlarged issued shares of AAG post completion of the disposals (assuming RM1 billion private placement by AAG).
Subsequently, it also proposed a distribution-in-specie via a reduction and repayment of Capital A’s share Capital A and distributes the new ordinary shares in AAG of approximately RM2.2 billion in value to the shareholders of Capital A of which ratio has yet to be determined.
It said, for illustration purposes, based on the issue price of RM1.30, and distribution of RM2.2 billion implying approximately 1,692.3 million new AAG shares (assuming Capital A’s outstanding shares of 4,254 million). Based on Capital A 4,254 million shares, the distribution shares are expected to be distributed on the basis of 397 new AAG shares for every 1,000 Capital A’s shares.
“We are positive on this latest corporate development by Capital A which will form part of the proposed regularisation plan to lift it out of the PN17 status.
“The expected gain from divestment of AAGL and AAB are RM4.7 billion and RM6.1 billion, respectively,” the research team opined.
“For illustration purposes, the aggregate total gain of RM10.8 billion is able to offset its negative shareholder equity of RM10.5 billion as at December 31, 2023 and bring it out of PN17,” it added.
Operationally, TA Securities Holdings Bhd’s research team (TA Securities) said is positive as the merger would create synergistic benefits to AAG as MAA and TAA can tap into AAX and TAAX’s presence in China, Japan, South Korea and Australia while AAX would benefit from growing in size with increasing bargaining power.