AirAsia needs RM7.4b to boost its shareholders’ funds, CGS-CIMB says

The figure will be an uphill task for the budget airline to achieve, forcing the group to think of alternatives to raise fund 

by S BIRRUNTHA / Pic by TMR FILE PIX

CGS-CIMB Research estimated that AirAsia Group Bhd would need a RM7.39 billion to boost its shareholders’ funds (on a pro forma basis) as at Sept 31, 2021, in order to be removed from classification as a Practice Note 17 (PN17) company. 

Analyst Raymond Yap said, however, the research house believes that this would be extremely challenging for the budget airline to achieve. 

He added that only RM193 million or 20% of the RM974.5 million redeemable convertible unsecured Islamic debt securities (RCUIDS) have been converted into shares so far, and further conversion will not be imminent, as AirAsia’s share price is now just 62 sen, below the RCUIDS conversion price of 75 sen. 

He also noted that the RM650 million warrants were also unlikely to be converted as the exercise price is RM1. 

“In our view, AirAsia may explore the de-consolidation of Indonesia AirAsia and Philippines AirAsia, which may improve its shareholders’ funds position by RM2.25 billion on accounting grounds. 

“Alternatively, AirAsia may consider selling down stakes in its various digital businesses to below 50% to benefit from fair value accounting revaluation gains,” he said in a recent note. 

Commenting further, Yap said a potential PN17 classification would have negative implications for AirAsia’s share price as CGS-CIMB believes most institutional investors would not be permitted by their mandates to invest, while retail investors may panic and dump the shares. 

He highlighted that derating catalysts include credible information that a new ultra-low-cost carrier airline is currently in the process of seeking regulatory approval to set up in Malaysia, having signed deals to lease two A320s at cheap leasing rates. 

Meanwhile, he said Malindo Airways Sdn Bhd may pull back aircraft from Indonesia into Malaysia once demand recovers sufficiently in Malaysia. 

“Potential upside risks include a possible containment of the pandemic once the Omicron wave passes, and if AirAsia secures a higher-than-expected lease-rate discount from its aircraft lessors,” he said. 

AirAsia announced on Jan 14, that it is now a PN17 listed issuer with effect from Jan 7. 

The group was supposed to have been classified as a PN17 issuer 18 months ago when its auditors raised significant uncertainties in its 2020’s audit report that cast doubt on AirAsia’s ability to continue as a going concern. 

AirAsia was given a general waiver by Bursa Malaysia until Jan 7, 2022, as part of its Covid-19 relief measures, however, the exchange declined to extend the waiver despite an appeal from the group. 

There was no immediate implication for AirAsia’s listing status. 

Within 12 months, AirAsia is obligated to submit a regularisation plan to Bursa for approval, after which it will have six months to execute the plan, and must record a net profit in the two consecutive quarterly results after the completion of the implementation of the plan. 

If the airline fails in any of these steps, then suspension of trading and delisting will follow, so it may take at least 21 months before AirAsia is potentially suspended or delisted. 

AirAsia group CEO Tan Sri Dr Tony Fernandes recently gave an assurance that the group is still formulating a plan to regularise its financial condition to address its PN17 status, and relevant announcements will be made in due course.