KUALA LUMPUR: A cash call is necessary for AirAsia Group Bhd to remain afloat as banks are unlikely to keep lending without its shareholders supporting any capital-raising exercise, analysts said.
Still, AirAsia might not raise up to RM1.4 billion capital from a rights issue all at once, according to analysts who attended AirAsia's briefing on the group's plans to address its cash flow requirements in near to medium term on Thursday.
The AirAsia group, they estimated, needed a total of RM3 billion capital to remain afloat.
Public Investment Bank Bhd (PublicInvest) analyst Nur Farah Syifaa' Mohamad Fu'ad said AirAsia would continue to operate in the current challenging period.
This is through its efforts mainly from ongoing discussions on capital raising (be it debt or equity) to ensure sufficient liquidity for the year, cash savings measures and resumption of its domestic travel from late May.
"Any proposal for a rights issue will require an extraordinary general meeting to gain shareholders' approval. Nevertheless, we understand that a rights issue may not be the favoured option at this juncture," said Nur Farah Syifaa'.
She said assuming entitlement basis of two rights shares for every three AirAsia's shares held at an illustrative issue price of 63 sen per rights share (based on RM1.4 billion proceeds), the rights issue might entail an issuance of up to 2.2 billion new shares.
As such, the group's net asset is estimated to be diluted from 89 sen to 53 sen per share, while its target price would fall to 47 sen post rights issuance, she said, noting that PublicInvest retained its "neutral" call on AirAsia with unchanged target price of 78 sen.
CSG CIMB analyst Raymond Yap said there may be several strategic shareholders waiting, in addition to South Korea's conglomerate SK Corp, for the potential private placement.
The private placement would likely be made after RM1 billion of (government and bank) loans were secured, Yap added.
"This is to ensure the best-possible valuation. A rights issue is possible, however, it is not on the table right now," he said in a report today.
Yap said a potential equity issue of up to RM1.4 billion was likely not be issued all at once,
He noted that an illustrative 50 sen will result in the issue of 2.8 billion new shares, thus increasing AirAsia's share base by 84 per cent to 6.1 billion shares and diluting existing shareholders' stakes.
"Taking AirAsia's assurances at face value, we are reasonably confident that the carrier will survive Covid-19, as the new RM1 billion loan to its local operation (AirAsia Malaysia), possible new loans to Indonesia AirAsia and the Philippines AirAsia, and potential RM1.4 billion new equity issue by AirAsia Group, will bring the total capital raising close to the RM3 billion, we estimate, needed to keep afloat," he said.
If Danajamin Nasional Bhd was willing to guarantee 80 per cent of a new RM1 billion loan to AirAsia Malaysia, Yap expects the carrier might be able to secure the loan at reasonable terms.
"This is because AirAsia Malaysia does not have many assets left to collateralise, having already sold almost all its planes to aircraft lessors."
Yap also said supplier financing would also play a role in AirAsia's survival.
He believes that AirAsia group would succeed in its efforts to extend the deferral of aircraft lease payments beyond the initial three-month period.
Lessors had limited options for aircraft redeployment and would have little choice but to work with their existing customers, he said.
"If any of the associate airlines cease operations, their aircraft will be returned directly to lessor with no recourse to AirAsia Group for unpaid lease rentals or for the remaining duration of the leases, as all airlines in the group sign for leases in their own names."
Yap said the LCC was also negotiating with banks for a further restructuring of its fuel hedging losses, while continuing to restructure its organisation to reduce operational expenditure.
CGS CIMB kept its target price for AirAsia at 58 sen per share as it believes the airline would continue to make loss next year, before turning profitable in 2022.
AirAsia's share closed at 78 sen today, up three cent with 83.95 million shares changing hands for a market capitalisation of RM2.62 billion.