AirAsia X may see creditors’ approval on liquidation risk

by SHAHEERA AZNAM SHAH / pic by TMR FILE

AIRASIA X Bhd (AAX) could see a high chance of approval for its proposed debt restructuring from its creditors to stave off liquidation risks, said MIDF Amanah Investment Bank Bhd (MIDF Research).

The research house added that the earliest repayment of the reconstructed debt is expected to be in three years after the exercise should AAX receive the green light.

“What is left right now is for AAX’s creditors to make a resounding decision on whether to accept or reject the proposal.

“We opine that the creditors could potentially come to an agreement on the terms, but they would have to be content with recovering a minute fraction of their capital.

“Should the proposal fall through, AAX could potentially initiate liquidation proceedings and the creditors will end up losing everything, especially the unsecured lenders,” it said in a note yesterday.

The research house maintained AAX’s earnings estimate mainly based on the theoretical basis as the Covid-19 pandemic continues to worsen in several parts of the airline’s key markets, and deemed AAX’s financial situation as at its “existential crossroad”.

AAX’s very near-term survival is at stake, it added. Based on the salient details of the announcement, the debt proposal needs to be approved by at least 75% of the total creditors; present and voting or it will be deemed terminated.

AAX is expecting to complete the proposal by the end of the first quarter of 2021, subject to all required approval being obtained.

The long-haul arm of AirAsia Group Bhd announced yesterday that it proposed reconstituting RM63.5 billion of debt, as well as reducing its share capital by 90% from RM1.53 billion to RM150 million by way of consolidating every 10 existing ordinary shares into a share.

In its exchange filing, AAX stated that it has severe liquidity constraints with a thin chance to recover to its previous state, citing an “imminent default of contractual commitments will precipitate a potential liquidation”.

The carrier appointed Datuk Lim Kian Onn, one of its board members and a chartered accountant and former banker, as its deputy chairman to lead the restructuring exercise.

Maybank Investment Bank Bhd (Maybank IB Research) said AirAsia’s move in exiting its Japan market through AirAsia Japan (AAJ) will bring a long-term positive impact on its earnings.

“The incarnation of AAJ had never generated a yearly profit even before Covid-19 struck. Hence, we are positive about this development.

“This is the second time AirAsia exited a Japanese airline investment. Our records indicate that AirAsia invested RM407.3 million in this most recent incarnation of AAJ. The first half of 2020, AAJ incurred ¥2.3 billion (RM90 million) net loss,” it said.

Maybank IB Research expects AAJ to incur about RM245 million and RM220 million net losses in its financial year 2020 (FY20) and FY21 respectively, while AirAsia to recognise its share of losses from AAJ of about RM164 million and RM146 million respectively.

“While AAJ will have to incur one-off expenses to lay off staff and return its three leased aircraft to lessors, there could be upside to our earnings estimates from this development,” it stated.

Although AirAsia holds 66.9% equity interest in AAJ, AAJ is recognised as an associate as AirAsia holds only 33% of voting rights.

The research house maintained its earnings estimates on the low-cost carrier, adding that the projection could turn more positive should AirAsia shave off its India operation.

MIDF Research maintained its target price (TP) for AAX at 5 sen, upgrading its recommendation to ‘Neutral’, while Maybank IB Research maintained its TP for AirAsia at 67 sen, upgrading its previous ‘Sell’ to ‘Hold’ for the carrier.

Shares of AAX fell 10% to 4.5 sen yesterday, giving it a RM186.67 million market capitalisation, while AirAsia fell 2.34% to 62 sen, valuing it at RM2.07 billion.