AirAsia may embark on fundraising route
PETALING JAYA: AirAsia Group Bhd is considering a rights issue, debt financing and even a private placement to raise more capital until air travel demand picks up.
The group is also actively exploring other potential monetisation opportunities including hiving off part of its digital business as raising cash is vital for its survival.
It plans to raise RM2bil to RM2.5bil and the funding should come in anytime from December to February 2021, analysts said.
AirAsia is expected to secure loans of RM400mil under the Danajamin government programme and RM300mil from a bank in Sabah.
AirAsia would still need an additional RM1.5bil to RM1.8bil.
UOB Kay Hian expected a 1-for-1 rights issue priced at about 50 per share or a mixture of rights issue and convertible debt..
“Given that the book value at the end of the third quarter 2020 was RM0.35, investors could be lukewarm to equity issuance at a substantial premium to book value, ’’ UOB Kay Hian said.
However, TA Research “see high chances for a successful fundraising exercise now due to vaccine optimism.’’
“We are mindful of the urgent needs for airlines to recapitalise their balance sheets but there could be a steep downwards adjustment to AirAsia’s share price in the event of a highly dilutive equity-raising exercise.’’
CGS-CIMB Research cautioned that without the equity issue, AirAsia is likely to fall into a net liability position by the end of financial year (FY) 2021.
It pointed out that the RM2.5bil in “capital raising should be just barely enough, but is cutting it very thin.’’
“The high level of infections in Malaysia, Indonesia and the Philippines is worrisome and could postpone the recovery. Without government support, AirAsia is living on the edge. We believe AirAsia may need to raise more than one round of funding, ’’ the research house said.
According to AmInvestment Research, AirAsia is poised to survive the pandemic with stringent cost controls and continued innovation of its business model.
The group has taken steps to conserve cash for future operations. It will not take delivery of new aircraft, restructured payments to lessors, disposed of aircraft engines and closed down the loss-making AirAsia Japan operations.
The aviation sector is worst hit hard by the Covid-19 pandemic but the promise of safe and effective vaccines has fed new hope that air travel can pick up next year.
Air travel bookings are trickling in, but for travel to pick up, borders need to re-open first.
The pandemic has cost airlines US$510bil in lost sales.
The sector will lose US$157bil this year and 2021, according to the International Air Transport Association.
For the first nine months of 2020, AirAsia turned in RM2.6bil in net losses.
For the full year, analysts said it would be over RM3bil.
AirAsia has recognised RM280.5mil in fuel swap losses, closing its forward fuel hedges, impaired RM444.2mil of receivables, pertaining to AirAsia X and AirAsia Japan.
The operating cash burn was RM1.17bil for year to end-September versus RM955mil for first half 2020.
Total cash reduced further to RM620mil in September 2020 versus RM996mil in June-2020, with net current liabilities at RM4.2bil.
Most of the research houses maintained their calls of the stock, although some revised their 12-month target price, and revised the earnings outlook.The share price catalyst is rapid distribution of vaccines by second quarter 2021 and higher quantum of Danajamin loans, said UOB Kay Hian.
AirAsia share price closed two sen higher at 73 sen in yesterday’s trading.