Yesterday, Capital A Berhad (Capital A) and AirAsia X Berhad (AAX) jointly unveiled the details of the corporate exercises that are intended to be undertaken.
AAG to assume AAX’s listing status
MIDF Research (MIDF)said today (Apr 26) AAX will initiate an internal organisation, which entails setting up a new entity called AirAsia Group Sdn Bhd (AAG) Shareholders of AAX will exchange their current shares for shares in the newly formed AAG on a 1:1 basis. AAG will then assume the listing status previously held by AAX. Following that, AAG will proceed to acquire Capital A’s aviation businesses through:
(i) acquiring 100% equity interest in AirAsia Berhad (AAB) by assuming RM3.80b of the RM3.83b debt owed by Capital A to AAB, and
(ii) acquiring 100% equity interest in AirAsia Aviation Group Ltd (AAAGL) by issuing 2.31b new AAG shares at an issue price of RM1.30 per share.
Reward for AAX shareholders
Pending the acquisitions/disposals, there was a proposed issuance of up to 223.5m free warrants in AAG based on 1 AAG warrant for every 2 AAG shares held by the existing AAX shareholders. The entitlement date for this issuance is to be determined after the competition of AAX’s internal reorganisation. Subsequently, AAG will proceed with a private placement of RM1.0b, with the proceeds earmarked to finance the newly consolidated business, which is already in progress.
Distribution in specie via a reduction and repayment of Capital A’s share capital
Following this, approximately 73.33% or 1.69b of the new ordinary shares in AAG, valued at RM2.20b, will be distributed to entitled shareholders of Capital A according to their respective shareholdings (Proposed Distribution). To illustrate, with the total issued share capital of Capital A at RM8.73b, comprising 4.25b ordinary shares, the distribution shares are expected to be allocated at a ratio of 397 new AAG shares for every 1000 shares held. Capital A is projected to retain around 18.39% or 672.5m of the enlarged issued shares of AAG, with the assumption of the RM1.0b private placement.
Positive shareholders’ equity
After the issuance of warrants and placement, AAG intends to reduce its share capital from RM4.05b to RM100.0m. This reduction involves cancelling paid-up share capital that exceeds available assets, thereby eliminating accumulated losses totalling RM3.27b.
In the case of Capital A, there are 942.7m remaining RCUIDS convertible into new shares at RM0.75 per share and 649.7m outstanding warrants.
After the Proposed Distribution, with no conversion of outstanding RCUIDS and warrants, share capital will decrease by RM2.20b to RM6.46b, and shareholders’ equity will turn positive at RM492.8m through the deconsolidation of the merger deficit resulting from Capital A’s previous acquisition of AAB following its disposal.
If all outstanding RCUIDS and warrants are exercised, the projected shareholders’ equity would amount to RM1.67b following the Proposed Distribution and disposal of AAB.
MIDF Maintains NEUTRAL
In summary, the proposed disposals will optimise the business operations by focusing on aviation services and digital ventures that synergise with and enhance its passenger airlines business. The proposed corporate exercises will aid the Group in its transition out of its PN17 status, with a deadline of 20 June 2024, to submit the plan to Bursa.
During yesterday’s briefing, there was an indication that the plans to list AirAsia’s brand manager through a Nasdaq llisted SPAC might be scrapped, as it is deemed unnecessary. No adjustments have been made to our earnings estimates thus far, as the exercises are subject to requisite approvals.
The management intends to begin sharing profit guidance for its digital entities during the briefing of its 1QFY24 results. The completion of the aviation disposal/acquisition is anticipated by 3QFY24, with the regularisation plan expected to be finalised by 1QFY25.
MIDF maintains their NEUTRAL stance on the stock with an unchanged target price of RM0.74 (based on FY24F EPS), as it is currently trading at its pre-pandemic average.
Key drivers for potential earnings growth could involve an accelerated restoration of its network and capacity to pre-pandemic levels.
