AirAsia X must pull off financial restructuring plan to avoid liquidation

The company is at its existential crossroad, another bold proposal on fundraising is exactly the kind of potent ‘cure’ AAX needs

by PRIYA VASU / pic by TMR

AIRASIA X Bhd’s (AAX) survival is highly reliant on the execution of the debt restructuring and fundraising of RM500 million the carrier has proposed to date.

“AAX is at its existential crossroad, another bold proposal on fundraising and amendment to proposed share reduction exercises are exactly the kind of potent ‘cure’ for the company’s ailments,” MIDF Research noted in a report yesterday.

However, MIDF cautioned that although it is looking at this development positively, should the proposals fall through, AAX could potentially initiate liquidation proceedings.

The low-cost airline on Monday announced another bold proposal to raise up to RM500 million via a rights issue of new ordinary shares in AAX and subscription by a special-purpose vehicle (SPV) incorporated by Datuk Lim Kian Onn directly, associates and others.

The targeted gross proceeds to be raised via the rights issue are expected to be up to RM300 million, whereas the SPV is expected to raise up to RM200 million.

The announcement further dis- closed that the SPV has an option to subscribe to an additional 15% of the enlarged total number of AAX shares after the proposed exercises above have been completed.

“Noteworthy to highlight, the SPV will commit to a minimum subscription of RM50 million, subject to final agreement,” said MIDF.

The research firm added that details of the proposal are still scant, and even though the quantum of gross proceeds has been disclosed upfront, pricing of rights shares has not been determined yet — which is likely as it tries to take advantage of possible movement of share prices.

“However, the management maintained that the timeline of the rights issue will be undertaken after the completion of the debt restructuring and corporate restructuring,” said MIDF.

Earlier, AAX announced a 90% reduction of its issued share capital that was revised to 99.9% of the issued share capital from 90%.

This entails a reduction of the issued share capital of the company from RM1.53 billion to an estimated RM1.53 million.

“Recall that, one of the key parts of the proposal is debt restructuring; an exercise to restructure RM63.5b of debts to be reconstituted into an acknowledgement of indebtedness by AAX for a principal amount of up to RM200 million.

“It also entails debt waivers, termination of contracts with related parties and conversion of advance payment and placed deposits to travel credits,” said MIDF.

AAX asserts that the proposals are vital for the survival of the group and its ability to avoid liquidation remains an ongoing concern, which requires significant concessions from its suppliers, creditors and financiers.

Based on its third-quarter results, AAX’s cash balances and equivalent stood at RM138.82 million with operating expenditure costs at circa RM280 million (staff cost made up almost 15% of the cost).

Its borrowings stood at RM5.6 billion, which is mainly made up of lease liabilities, circa 80% of the total borrowing amount.

“These figures only serve to highlight the group’s financial woes, pinpointing the fact that without significant debt restructuring exercises, AAX may well become among the casualties of the Covid-19 pandemic,” said MIDF.

MIDF added that the aviation industry is expected to rebound once travel restrictions are lifted and air travel starts to begin in earnest.

“At this juncture, we hope it will take many more months before air travel can resume to the pre-Covid-19 level which is sufficient to save the industry from further losses while we wait for vaccines to hit the shelves and newly infected cases to be contained worldwide.

“However, for AAX, the bigger issue will be the completion of its debt restructuring and fundraising exercise as the company’s existence is highly reliant on the outcome of these two corporate exercises,” said MIDF.

It added that AAX will be in a more comfortable position with lesser baggage on its balance sheet.

MIDF maintained its earnings estimates, purely for theoretical basis as the pandemic continues to worsen in many parts of AAX key markets, at a target price of five sen a share. It also maintained a ‘Sell’ call on AAX.

Read our earlier report

AirAsia X revises corporate restructuring plan