PETALING JAYA: Even with a potential capital reduction, AirAsia Group Bhd (AAGB) may still struggle to uplift its Practice Note 17 (PN17) status given the huge RM4.55bil gap in its shareholders’ funds.
It may also need to look into monetising its digital assets and decomposition of its Indonesia and Philippines units.
CGS-CIMB Research said one of AAGB’s options to reduce the gap is for AAGB to obtain shareholders’ and court approval for a capital reduction.
This means that RM5.8bil of retained losses as at September 30, 2021 can be offset against a paid-up share capital of RM8.5bil, leaving a residual paid-up share capital of RM2.7bil.
In this way, AAGB will need to have shareholders’ funds of at least RM1.35bil, or “only a RM4.55bil boost as at Sept 30, 2021 to exit PN17 status,” it said.
The research house added that AAGB may consider the deconsolidation of Indonesia AirAsia/Philippines AirAsia (IAA/PAA) to reduce the gap by RM2.25bil.
But this may only be possible if IAA/PAA secured new shareholders, upon which AAGB can convince its auditor that it only has significant influence, but not control, over IAA/PAA.
Without this, AAGB may not be able to secure its auditor’s approval to deconsolidate, it said.
Even though AAGB is working to reduce its aircraft leasing rates, the lease liabilities on its balance sheet may not actually fall due to the extension of the leases by three or six years, and because its auditor may apply for a lower discount rate to present-value the future lease liabilities.
“Even after assuming a deconsolidation of IAA and PAA, which will add back AAGB’s RM3.2bil share of their net liabilities, half conversion of the Redeemable Convertible Unsecured Islamic Debt Securities of RM556mil, and half of the warrants (RM325mil), the revalued net asset value will still be a negative RM1.6bil (negative 32 sen per share),” CGS-CIMB said.
To offset the above and to avoid having a zero target price for AAGB, CGS-CIMB has factored in a RM2bil valuation (41 sen per share) for the digital businesses.
“AAGB may have to sell down stakes in its various digital businesses to below 50% in order to benefit from fair value revaluation gains’” it said. But it is difficult to predict if or when this may happen.
It said the potential derating catalysts include the longer-than-expected shutdowns in global international travel as various countries keep their travel bans and restrictions on inbound travellers in place to prevent imported cases of Covid-19 especially in view of the more infectious Omicron variant.
Higher oil prices could also hurt profitability in the immediate future since AAGB no longer has any outstanding fuel derivatives since unwinding them in the first quarter of 2021.
There is also added competition from the entry of new carriers, besides Malaysia Airlines and Malindo Air.