Analysts: AirAsia has met minimum fundraising target with latest RM500 mil 'blood infusion'

Analysts: AirAsia has met minimum fundraising target with latest RM500 mil 'blood infusion'
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KUALA LUMPUR (Oct 7): Analysts and fund managers are now more positive on AirAsia Group Bhd’s financial position after the low-cost carrier secured approval from Danajamin Nasional Bhd (Danajamin) for an 80% guaranteed loan of up to RM500 million, with some pointing out that the group has now met its minimum fundraising target threshold.

"AirAsia previously revealed it needs to raise between RM2 billion and RM2.5 billion to ensure its survival through the pandemic-induced aviation crisis. Taking into account the RM500 million Danajamin-guaranteed loan that AirAsia has managed to secure, AirAsia has met its minimum targeted fundraising threshold," Fortress Capital Asset Management chief executive officer Thomas Yong told The Edge when contacted.

Likewise, Public Investment Bank Research said the RM500 million club facility, together with other funding and monetisation exercises AirAsia has put into effect, will have raised RM2.1 billion, within AirAsia’s RM2 billion to RM2.5 billion guidance range.

In an interview with The Edge Malaysia weekly earlier this year, AirAsia co-founder and group CEO Tan Sri Tony Fernandes said the group’s funding plans included loans from three local banks, pending approval from Danajamin. He said the group was expecting to raise fresh funds of between RM2 billion and RM2.5 billion through debt, rights issue, and the monetisation of its digital assets, with the expectation that Danajamin would approve guarantee for RM1 billion worth of funding.

Since the pandemic began last March, AirAsia has managed to raise close to RM1.5 billion, including US$55 million from its 10.9% shareholding in NYSE-listed Fly Leasing, following Carlyle Aviation Partners’ acquisition of the aircraft leasing investment company.

Going forward, Yong said AirAsia will be looking to raise another RM616 million to RM1.02 billion from its upcoming issuance of redeemable convertible unsecured Islamic debt securities (RCUIDS). “Together with the RM500 million loan secured, the cash pile should last AirAsia anywhere between six to 12 months, assuming minimal/sub-optimal operating level,” he added.

The general consensus, however, is that it is still not enough for the group to turn its operations around.

In fact, until AirAsia is able to operate at some level of normalcy, no amount of cash will be considered enough for the airline, given the high fixed cost nature of the airline business, said Yong.

Still, the incoming RM500 million loan is an important “blood infusion” to keep AirAsia alive, as it continues to bleed from the impact of the pandemic, said TA Securities analyst Tan Kam Meng. “Coupled with other fund-raising exercises, i.e. the rights issue of debt securities and private placement of shares, the group would get RM2 billion to RM2.5 billion to keep it afloat until 2022,” Tan told The Edge.

Indeed, the "blood infusion" is much needed, given that AirAsia’s cash balance has shrunk to RM235.6 million as at end-June this year, from RM996.1 million a year ago. The group's president (airlines) Bo Lingam has revealed that the group needs about RM70 million to RM100 million per month to sustain its operations.

“This should relieve AirAsia's immediate cash burden and help it better prepare for the anticipated reopening of Malaysian domestic air travel. Fortunately, and barring any further travel restrictions, we should see some sense of normalcy returning at the end of 2021,” Yong said.

The Malaysian government has announced that domestic air travel would be allowed once the country reaches 90% vaccination rate, which is expected to be reached by sometime year end. Other AirAsia’s core operating countries like Thailand, Indonesia, and the Philippines should also see similar reopening soon.

“However, given that international air travel will still be restricted and unlikely to reopen anytime soon, the implication is that AirAsia may have to do additional fundraising, but if so, to a much lesser extent,” Yong added.

Having said that, prospects are looking better for AirAsia now, than it did a few months back, according to Yong and Kam.

Yong also expects AirAsia, which was already one of the lowest cost airlines in the world before entering the crisis, to come out from the crisis as "an even leaner low-cost carrier", given the recent operating cost reduction measures implemented. "This should bode well with AirAsia’s recovery, given that some of its competitors are either reducing capacity or winded-up operations,” he said.

Tan noted AirAsia is in a much better financial position now after restructuring its lease agreements with lessors, and that the RM2 billion to RM2.5 billion is important for the company to compete effectively with global peers who have received financial support from governments.

MIDF Research strategy head Syed Muhammed Kifni Syed Kamaruddin, meanwhile, said AirAsia needs to substantially raise more funds in order to effect an actual turnaround.

“It must be noted that AirAsia’s group shareholders equity stood at minus RM5 billion, while its net working capital was at minus RM7.4 billion as of mid-2021. It also held long-term liabilities of more than RM14 billion,” he said.

Having said that, he believes AirAsia's fundraising efforts are on track to ensure it has sufficient liquidity to get back on its feet, after securing the government's approval for the RM500 million club facility.

AirAsia completed two tranches of its private share placement exercise in the first quarter of 2021, from which it raised RM336.5 million after issuing 470.2 million new shares. The remaining 198.2 million shares will be issued by year end.

AirAsia has also proposed to undertake a renounceable rights issue of RCIUDS to raise up to RM1.02 billion, and the issuance and listing applications have been submitted to the Securities Commission and Bursa Securities. Meanwhile, BigPay, AirAsia's digital portfolio company, has managed to secure up to US$100 million from South Korean conglomerate SK Group.

Then, what about its sister company AirAsia X Bhd (AAX)? Will AirAsia be able to lend it a helping hand out of its rut?

Hong Leong Bank Investment Bank Research analyst Daniel Wong, who also does not think the RM500 million club facility is enough for AirAsia to turn around its business, said AirAsia won't have enough resources to do so.

“If AirAsia already has difficulty sustaining its own operations with the limited cash in hand, how would it be able to assist AAX?” Wong asked.

Read also:
AirAsia plans to reactivate 30-45 aircraft this month if interstate borders lift 
Rising crude oil prices, restricted international air travel continue to cloud AirAsia's outlook

Tan Choe Choe