MIDF Research reiterates that AirAsia’s survival is highly reliant on the execution of the proposed debt restructuring and fund raising, saying that “extraordinary situations call for extraordinary measures”. — AFP photo
KUCHING: AirAsia X Bhd (AirAsia X) proposes to reduce issued capital by 99.9 per cent and announces plans for fresh equity of RM500 million for a reset of the airline post-Covid 19, which analysts are keeping a close eye on.
In a statement, AirAsia X said it is proposing to raise up to RM500 million in rights issue of new ordinary shares in AirAsia and subscription by a special purpose vehicle (SPV) incorporated by Datuk Lim Kian Onn directly, associates, other places.
The targeted gross proceeds to be raised via the rights issue is expected to be up to RM300 million whereas the SPV is expected to raise up to RM200 million.
Furthermore, the announcement disclosed that the SPV has an option to subscribe to an additional 15 per cent of the enlarged total number of AirAsia X shares after the proposed exercises above have been completed. Noteworthy to highlight is that the SPV will commit a minimum subscription of RM50 million, subject to final agreement.
Even though the quantum of gross proceeds has been disclosed upfront, MIDF Amanah Investment Bank Bhd (MIDF Research) saw that 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,” it said yesterday following AirAsia’s announcement.
“To date, based on its third quarter result, AirAsia X’s cash balances and equivalent stood at RM138.82 million with operating expenditure at circa RM280 million.
“Meanwhile, borrowings stood at approximately RM5.6 billion – which is mainly made up of lease liabilities, circa 80 per cent of the total borrowing amount.
“These figures only serve to highlight the group financial woes, pinpointing the fact that without significant debt restructuring exercise, Airasia X may well become among the casualties of the Covid-19 pandemic.”
MIDF Research reiterated that AirAsia’s survival is highly reliant on the execution of the proposed debt restructuring and fund raising, saying that “extraordinary situations call for extraordinary measures”.
“For AirAsia X, that is at its existential crossroad, another bold proposal on fund raising and amendment to proposed share reduction exercise are exactly the kind of otent “cure” for the company ailments,” it said.
“We looked positively on these proposals. On another note, should the proposals fell through, AirAsia X could potentially initiate liquidation proceedings.”
This falls back on a general assumption that the aviation industry is expected to rebound once travel restrictions are lifted and air travels start to begin in earnest.
“That said, at this juncture we opine that it will take many more months before air travels to will resume to the pre-Covid 19 level that 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,” MIDF Research added.
“However, for AirAsia X, the bigger issue will be the completion of its debt restructuring and fund-raising exercise as the company existence is highly reliant on the outcome of these two corporate exercises.
“Once completed, we opine that the company will be in more comfortable position with lesser baggage on its balance sheet. Without it, AirAsia X’s future as an airline might continue to be uncertain.”
The post Positive on SOS to AirAsia’s investors appeared first on Borneo Post Online.