KUALA LUMPUR: CIMB Equities Research believes AirAsia is actively lobbying the Indonesian government not to enforce the end-July deadline for all airlines to have positive shareholders’ funds.
The research house said on Wednesday the move would result in a loss of 2,000 jobs and entrench Lion Air’s market dominance.
“At the very least, Indonesia AirAsia (IAA) may be given more time to comply with the ruling. A possible Cabinet reshuffle before end-July may yet give hope that the ruling will be abandoned.
“We have an Add call on AirAsia but refer investors to our June 15 report for an analysis of the associated risk,” it said.
CIMB Research said the ruling would result in a loss of jobs and reduce competition in the aviation marketplace.
“The time period given to comply is also onerously short. An impending cabinet reshuffle may yet save IAA,” it said.
The research house retained its Add rating with an unchanged (RM2.26) target price (based on sector average CY16 P/E of 11 times) as AirAsia looks oversold based on our base-case projections.
“Re-rating catalysts include a possible resolution of the capitalisation and funding issues at IAA but we acknowledge that the risks to the stock remain high,” it pointed out.
The Jakarta Post wrote last week that Indonesia’s Transport Ministry has made it mandatory for all Indonesian airlines to have at least Rp500bil in shareholders’ funds by July 31 if they operate aircraft with 70 seats or more. Thirteen carriers are affected, including IAA and Batik Air.
IAA had negative equity of Rp3,035bil at end-1Q15 so it would need an injection of at least Rp3,535bn if the rule was enforced.
“In ringgit terms, AirAsia would need to convert RM497mil of debt to equity while Indonesian investors would need to pump in RM517mil of new equity to maintain AirAsia’s stake at no more than 49%.
“The current plan, as we had explained on page 11 of our 15 June report, was for its local partners to pump in US$44mil (RM167mil) of new equity or just one-third of the required RM517mil, which is inadequate,” it said.
In order for IAA to avoid suspension, it would need Indonesian investors to pump in more cash or get Indonesia to do a U-turn on the policy directive.
Should the ruling be enforced, it would be hugely negative to AirAsia as IAA may have to suspend or permanently shut down operations while AirAsia would have no hope of recovering its debt from IAA and would be left with 29 planes to find a home for.