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KUALA LUMPUR (8 October): The outcome of AirAsia X Bhd’s (AAX) massive debt restructuring exercise is largely dependent on Airbus and international lessors.
A large chunk of the low-cost carrier’s RM63.5 billion is related to aircraft orders that have been placed but not delivered, according to people familiar with the matter.
“Most of AAX’s loans of RM6.09 billion are lease liabilities to these lessors and Rolls Royce,” said a person familiar with the restructuring plan. “As for the RM 63.5 billion figure, most of it, roughly more than 70%, is for Airbus for on-demand aircraft. The planes were ordered but not delivered. “
As of June 30, AAX’s loans amounted to RM6.09 billion, a large part of which is owed to some 16 international lessors, according to people familiar with the company.
The airline also owes current lease liabilities of RM 856.41 million and non-current lease liabilities of RM 4.95 billion.
The airline’s filing with the Malaysian Business Commission shows that there are unsatisfied charges with Malayan Banking Bhd (Maybank) and CIMB Group Holdings Bhd. It is understood that these are bank guarantees to lessors for monthly payments and the amount is “relatively small” compared to the lease liabilities that make up 95% of their RM6.09 billion borrowings.
In summary, AAX announced on Tuesday a debt restructuring plan to reconstitute liabilities of RM63.5 billion into a principal amount of up to RM200 million.
In addition to that, the airline has proposed a capital reduction of 90% or RM1.38 billion of its issued share capital to offset its accumulated losses, as well as the consolidation of shares of every 10 existing shares in AAX into one share.
Meanwhile, AAX said it intends to raise up to RM500 million, including by applying for a government guaranteed loan under the Danajamin PRIHATIN Guarantee Scheme and / or by raising funds from capital providers.
Investment analysts do not foresee any major problems for AAX in obtaining the government guaranteed loan, considering that aviation forms an important part of the local economy.
It is known that in 2018, AAX together with AirAsia Group contributed US $ 2.6 billion to the national GDP and supported 76,600 jobs.
The restructuring plan did not propose a cash call. However, the airline emphasized in the announcement that the correct size of the group’s level of operations and its financial obligations are “prerequisites for obtaining any fresh capital, comprising both equity and debt, that will be used to support implementation.” . of your revised business plan ”.
The announcement has surprised when considering the pronounced haircut of its creditors. And that has led many to wonder how AAX will convince its creditors.
Public Investment Bank Bhd analyst Nur Farah Syifaa ‘Mohamad Fu’ad commented that the restructuring is a necessary first step, but that it will likely be a long saga in the rehabilitation of the airline.
“We believe that the debt restructuring exercise is necessary to address your stretched cash flow and current liquidity constraints, although the significant haircut your creditors are expected to take on may be a sticking point,” he wrote.
Another analyst said the cut is massive and it is unclear how AAX will negotiate with its creditors to successfully restructure its debt.
“If the company doesn’t get approval from its creditors, AAX could be wound up and the creditors could be left with nothing. In a way, creditors are forced to accept this deal or risk getting nothing in the end, “said the analyst who declined to be named.
MIDF Research said the debt restructuring proposal will require the approval of at least 75% of total creditors or it will not be carried out.
Management expects to complete the proposal by the end of the first quarter of 2021.
“We believe that creditors could agree on the terms, but they would have to be content with recovering a tiny fraction of their capital. Furthermore, the earliest payment is expected to be due in three years after the restructuring exercise, ”said the research house.
MIDF had updated its recommendation on AAX to ‘neutral’ from ‘commercial sell’ previously and maintained its five sen price target, due to the decline in the airline’s share price. He also said there is slight optimism that the agreements will be approved.
Datuk Lim Kian Onn, who has been reappointed as vice president, took on the challenge of leading the proposed debt and corporate restructuring of the airline.
It will be interesting to see how Lim, a former investment banker, and his team will pull it off.
AAX fell 0.5 sen to close at 4.5 sen, for a market capitalization of RM186.67 million.
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