KUALA LUMPUR: Maybank IB research said AirAsia’s recently proposed placement exercise will strengthen its balance sheet.
On top of that, the corporate exercise ensures that the principal shareholders are fully committed to the business, it said on Monday.
AirAsia announced that it has entered into an agreement with Tune Live Sdn Bhd, owned by the founders of AirAsia, to issue and allot 559 million of new shares (16.7% of AirAsia’s enlarged share base) at an issue price of RM1.84, which will raise RM1.006bil of capital.
The exercise requires shareholders’ approval via an upcoming EGM. Maybank IB is neutral on the development for now and it does not change its fair value assessment of the group which is based on 1x 2016 P/BV.
Usually, when founding shareholders inject new capital into the business, it is often when the business is in distress or debt financing is no longer attainable. “However, AirAsia is far from distress and is on track to deliver strong earnings growth in 2016. While the capital injection will benefit the group, it is not critical as AirAsia has a manageable net gearing of 2.29x as at end of 2015. Furthermore, minority shareholders will lose out as their shareholdings will be diluted, and some might not be happy that they are not given the option to participate,” it said.
Of the RM1.006bil in proceeds, 34% will be used to prepay debt, 27% to fund aircraft acquisitions, 10% to construct a new headquarters and 28% for working capital. The founding shareholders will hold a combined 32.5% in AirAsia post the corporate exercise versus 19.0% presently.
“The real question is whether minority shareholders will approve exercise, being dilutive in nature. In the near term, we think the share price will range bound near the RM1.84 level, which is the ‘strike price’ of the new share issuance,” said Maybank IB.
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