SMTrack eyes raising RM120m from convertible notes to fund airline business

by NUR HANANI AZMAN / pic by BLOOMBERG

SMTRACK Bhd proposed to issue redeemable convertible notes with an aggregate principal amount of up to RM120 million to finance its diversification into the airline business.

On Dec 23, 2019, SMTrack announced that Citilink (M) Aviation Sdn Bhd (CASB) had submitted an application to the Malaysian Aviation Commission for the air service licence.

“SMTrack intends to utilise the proceeds from the proposed notes issue as 60% down payment to lease the aircraft.

“The total down payment of up to RM42 million, borne by both SMTrack and CASB, will represent 70% of the value of the aircraft,” it said in a bourse filing yesterday.

The five-year monthly lease repayments will be funded through CASB’s operations.

SMTrack also intends to utilise up to RM36 million of the proceeds to purchase an aircraft for cargo carriage services.

CASB is currently still scouting for an appropriate aircraft to be purchased. The group is mulling over the purchase of either Airbus A300, Boeing 737 or Boeing 767, its exchange filing yesterday stated.

The purchase consideration of RM60 million arrived based on recent market listings after taking into consideration age, specification and condition of the aircraft.

The proceeds of up to RM3.7 million will be utilised for 60% of the purchase cost of operational vehicles which include up to three units of cargo vehicles and about 350 unit load devices for the loading of cargo onto the aircraft.

SMTrack entered into a conditional subscription agreement with Advance Opportunities Fund (AOF) and AOF 1 for the proposed notes issue which will be issued in four tranches.

SMTrack said the notes are convertible at the option of the holders of the notes into new ordinary shares in SMTrack (conversion shares) at the conversion terms.

“It is redeemable at the election of SMTrack and/or on the maturity date in cash, subject to the terms and conditions as set out in the subscription agreement.

“It has a tenure of 60 months (five years) from the closing date of the first sub-tranche of Tranche 1 Notes (maturity date),” it said

AOF is a proprietary fund established in the Cayman Islands in 2006. Tan Choon Wee is the founder and director of AOF, while Nicholas Lin Kuan Liang is the director of AOF.

AOF manages its own funds and investment portfolios, and invests in a variety of financial instruments, including but not limited to investing in quoted securities through private unlisted debt-to-equities convertible instruments known as redeemable convertible notes and redeemable convertible preference shares issued by Malaysian companies in the past.