AirAsia’s private placement will prove its capabilities to raise funds

By S BIRRUNTHA / Pic By RAZAK GHAZALI

AIRASIA Group Bhd’s private placement exercise will prove the airline’s capabilities to raise funds among the investors if it is done within the stipulated timeline, MIDF Amanah Investment Bank Bhd Research (MIDF Research) said.

The research house added that this will bring a sigh of relief to the cash-strapped company.

“If the private placement is completed within the stipulated timeline, it will prove that there are still lingering confidence remaining in the group among the investors, allowing it to raise funds despite its current predicament.

“However, we would like to stress that this exercise only serves as a stopgap measure to partially address the group’s financial concerns,” it said in a recent report.

MIDF Research cited AirAsia’s management had previously indicated a conservative estimate that the group needs between a capital RM2 billion and RM2.5 billion to tide them over comfortably until the end of financial year 2021 (FY21).

AirAsia is expected to raise RM250 million through the first tranche of its private placement involving 369.85 million shares priced at 67.5 sen each. This represents a discount of 9.82% to the group’s five-day volume-weighted average price.

MIDF Research said the full placement exercise is expected to raise gross proceeds of up to RM451.51 million, considering that it was stated in its previous announcement — a large portion of the raised amount or circa 62% is earmarked for working capital expenses and fuel hedging settlement.

“Furthermore, about 17% of the fund will be allocated to grow the group’s digital pillar via AirAsia Digital’s subsidiaries, which is in line with the group’s strategic pivot to become a digital lifestyle company,” it noted.

The research house believes AirAsia may need to go through another few rounds of fundraising exercises, exposing its current shareholders to more potential dilution in the future.

It added that the worrying level of Covid-19 infections in Malaysia and other the group’s key markets are alarming and dampening the recovery trajectory this year.

“Furthermore, with other air operator certificates (AOCs) under the group in similar distress, it is probable that AirAsia will step in to inject liquidity to maintain the respective AOCs capital adequacy.

“To note, Philippines AirAsia Inc (PAA) and PT Indonesia AirAsia (IAA) are currently in various stages of bank loan applications,” it said.

The research house has maintained its earnings forecasts on AirAsia for now — as all the potential adverse impacts to the extent have been well priced in — and reiterated its ‘Sell’ call on the group by maintaining the target price (TP) of 37 sen per share.

It added that the TP has taken into account the potential enlarged share base to 4.01 billion shares from the private placement exercise, which is an additional 20% of new shares from its current share base of 3.34 billion.

“Although recovery for the aviation sector and air travel is expected to gradually take place in 2021, it remains an uphill battle for AirAsia given it is struggling financially to remain afloat in the current pandemic-laden operating environment.

“Key risks to our call include faster than expected travel demand recovery, worsening pandemic, stricter Movement Control Order imposed on air travels, and further round of equity fundraising,” it said.

Public Investment Bank Bhd (PublicInvest Research) has maintained its ‘Underperform’ call on AirAsia, with unchanged TP of 39 sen.

It added that overall, key operating statistics for its FY20 were below expectations, with passengers carried and available seat kilometres only accounting for 83% and 75% respectively.

“AirAsia’s 4QFY20 results and passenger yield data are expected to be released in two weeks’ time, which we believe will continue to be under pressure due to lower passenger traffic and loss in revenue,” it noted in a recent report.

AirAsia has announced its 4QFY20 operating statistics recently, with its passenger volume for the consolidated AOC operations (Malaysia, Indonesia and Philippines) declining 30% quarter-on-quarter (QoQ).

The group said this was mainly dragged by the reimplementation of interstate travel restrictions in Malaysia, where seats capacity was reduced by 55% QoQ.

Nevertheless, its IAA and PAA units showed a QoQ rebound in both passenger traffic and seat capacity as domestic travel restrictions eased, while its passenger load for the consolidated AOCs