AirAsia poised to fly high

PETALING JAYA: AirAsia Group Bhd’s fortunes rest on how it can successfully navigate through the turbulent times and transform into a digital travel and lifestyle company and its recent cash call that will take it through nearly two years.

The aviation industry is facing its worst ever crisis with the Covid-19 pandemic and even though vaccinations are in progress across the globe, border openings will depend on how fast the infection rates drop.

Until then, AirAsia needs funding of RM2bil-RM2.5bil since its cash burn rate is RM29mil per month.

Even though it plans to raise up to RM1bil via the rights issue of redeemable convertible unsecured Islamic debt securities (RCUIDS), Maybank IB Research believes this will only last for 21 months. Of course, it had earlier raised RM336mil in a share placement.

“Investors ought to be less worried about AirAsia Group’s status as a going concern. Yet, the group will be saddled with higher cost and share overhang, ’’ Maybank IB added.

Several analysts are positive about the airline’s plan to raise RM615mil to RM1bil (based on minimum to maximum subscription level) with the RCUIDS.

AirAsia has proposed to undertake the RCUIDS on the basis of two RCUIDS with one-free warrant for every six AirAsia shares held. It will be priced at 75 sen and comes with a seven-year tenure, while offering a 8% profit rate per year, which is more attractive than the current interest rates.

Meanwhile, Kenanga Research believed that the RCUIDS is a better investment option for those looking for an exposure to AirAsia given its 8% yield and downside risk protected by a phased redeemable-at-par feature beginning in year four.

It added that there could be potential upside from capital gains to be reaped from conversion at any time within the seven years from issuance, provided that the rehabilitation process of AirAsia goes well.

To meet the minimum subscription level, even the main shareholders – Tan Sri Tony Fernandes, Datuk Kamarudin Meranun, Tune Live and Tune Air – will need to provide an unconditional and irrevocable undertaking for their portion worth RM258mil.

“This is a vote of confidence from major shareholders on the future of the group, ’’ said MIDF Research.

Based on AirAsia’s last closing of 88 sen per share, each shareholder is required to pump in additional 28.2% of capital in the form of convertible debt to sustain his shareholding in the future, said TA Securities Research.

“This is fair and not excessive, in our opinion, taking into account the characteristics of RCUIDS, which is a hybrid of fixed income security embedded with a right but not an obligation to convert to share call, ’’ TA added.

Maybank IB maintained its earnings estimates for now as “it is difficult to ascertain how much will be raised, how many new shares will be issued and how much interest expense will be incurred at this point.”

Maybank IB, MIDF and AmInvestment Research maintained their “sell’’ calls on the stock with a target price (TP) of 36 sen, 44 sen and 61 sen respectively.

Both PublicInvest Research and Kenanga Research have an “underperform”’ call with a TP of 19 sen and 70 sen respectively.

In contrast, TA Research has a “buy’’ call with TP of RM1.18 a share.