National carrier Malaysian Airlines System Bhd (MAS), which is 69%-owned by Khazanah Nasional Bhd, has issued the second tranche of its Perpetual Junior Sukuk programme amounting to RM500 million.
This tranche is part of its entire programme valued at RM2.5 billion. It is part of its turnaround plan which was introduced in December 2011.
The sukuk is issued at par with a semi-annual profit rate of 6.9% per annum up to 10 years. If MAS does not exercise its option to redeem the sukuk at the end of the 10th year, the periodic distribution increases by 2.5%.
The proceeds from the sukuk will be used for working capital purposes and to refinance its existing borrowings.
The company’s gearing stood at 2.5 times in the second-quarter financial year 2012 (2QFY12) and its ability to pare down its debts is very important for the airline to return to profitability.
For 2QFY12, the company reported a core loss of RM160.4 million compared to a loss of RM470.6 million for the corresponding period in the previous year.
The MAS turnaround plan targets to return the company to profitability by 2014.
TA Research, in a research report dated Aug 15, said that it expects MAS to have a better performance in the second-half of 2012 as a result of better yields and lower fuel price environment.
The research house has a ‘Hold’ recommendation for the company with a target price of RM1.23. Previously, the research house had a ‘Sell’ recommendation for the company.
Apart from the sukuk programme, MAS has also undertaken an aircraft leasing arrangement with the Ministry of Finance and a commercial funding programme with Khazanah in the event that the sukuk and other measures do not provide adequate funding.
TA Ressearch, in its report, said MAS could return 34 old aircraft to its lessors by the end of the year given that it has secured financing to take delivery of 15 aircraft in 2HFY12.
MAS’s competitiveness will be enhanced by this measure as its average fleet age will be reduced to 7.7 years against the current 10.8 years.