In the early hours of Monday morning, the share price of AirAsia continued its downward trend amid weaker investor sentiment following the group’s classification as Practice Note 17 (PN17) status following its failure to obtain an extension of the relief period from the Malaysian stock exchange, Bursa Malaysia.
The stock of AirAsia fell 2.5 cent, or 4.03%, to 59.5 cent at 10:30 am, with 35.54 million shares traded.
Tan Sri Tony Fernandes, the chief executive officer of AirAsia, recently stated that the company was in the process of drafting a strategy to normalize its financial position in order to resolve its PN17 status, and that relevant statements will be made in due time.
AirAsia was intended to have been categorized as a PN17 issuer 18 months ago, when its auditors noted major doubts in its 2020 audit report, raising concerns about the group’s capacity to continue as a going concern. However, the group’s auditors decided not to do so.
Bursa Malaysia granted AirAsia a general waiver until January 7, 2022 as one of its COVID-19 relief measures, however the bourse rejected to prolong the waiver amid an appeal from the group. The group’s listing status was not affected as a result of this decision.
CGS-CIMB calculated that AirAsia would need an RM7.39 billion increase in shareholders’ funds (on a pro forma basis) as of September 31, 2021 in order to be removed from the PN17 classification, which the brokerage believes would be exceedingly difficult to accomplish.
“Only RM193 million or 20 per cent of the RM974.5 million redeemable convertible unsecured Islamic debt securities (RCUIDS) has been converted into shares so far, and further conversion will not be imminent, as AirAsia’s share price is now just 62 cent, below the RCUIDS conversion price of 75 cent,” the statement continued.
According to the brokerage, it is also unlikely that the RM650 million worth of warrants would be converted since the exercise price is RM1.
“In our view, AirAsia may explore the deconsolidation of Indonesia AirAsia and Philippines AirAsia, which may improve its shareholders’ funds position by RM2.250 billion on accounting grounds. Alternatively, AirAsia may consider selling down stakes in its various digital businesses to below 50 per cent, to benefit from fair value accounting revaluation gains,” CGS-CIMB stated.
As for AirAsia’s share price, the brokerage stated that it expects most institutional investors will refuse to invest in the stock while retail investors could panic and sell off their shares.
“De-rating catalysts include credible information that a new ultra-low-cost carrier airline is currently in the process of seeking regulatory approval to set up in Malaysia, having signed deals to lease two A320s at cheap leasing rates,” the report said.