KUALA LUMPUR – CGS-CIMB Securities Sdn Bhd expects AirAsia Group Bhd’s (AAGB) rights issue to be successful as the 8% yield is deemed attractive for investors – even though the conversion price of 75 sen is not much lower than its current share price.
On Monday, the budget airline announced the move which entails the issuance of 1.3 billion seven-year redeemable convertible unsecured Islamic debt securities (RCUIDS), with a nominal value of 75 sen each, on the basis of two RCUIDS with one free detachable warrant for every six ordinary shares held.
The exercise is part of the group’s fundraising strategy, and is expected to raise gross proceeds of RM974.5 million.
“The RCUIDS will be issued at a nominal value of 75 sen, with a profit rate of 8% per annum and convertible to ordinary shares at any time during its seven-year maturity period at the conversion price of 75 sen.
“More than 85% of the proceeds from the RCUIDS issue will be used for the airline business and for working capital, with 12% set aside to fund the digital businesses,” it said in a note today.
According to CGS-CIMB Securities, AAGB founders Tan Sri Tony Fernandes and Datuk Kamarudin Meranun had given irrevocable undertakings to subscribe for their total 26.4% proportionate entitlement of the RCUIDS and half of the remaining RCUIDS will be underwritten.
“Although the remaining 36.8% will not be underwritten, we expect the rights issue to be successful as we think the 8% yield is attractive for investors, even though the conversion price of 75 sen is not much lower than the current share price,” it said.
It also believed that the issue of RCUIDS is beneficial for AAGB shareholders as a whole, compared to a rights issue of new ordinary shares because the conversion price is most probably higher than any hypothetical rights issue price.
“RCUIDS holders (would) enjoy an eight per cent per annum profit rate, while AAGB also has the option to redeem the RCUIDS in whole or in part to avoid shareholder dilution,” it said.
Though not unexpected, CGS-CIMB Securities noted that the RCUIDS have a higher conversion price than its earlier assumption, hence raising the research house’s revalued net asset value-based target price to 24 sen from 19 sen previously.
“We reiterate our ‘reduce’ call as the road to traffic recovery is arduous given the surge in Covid-19 new cases in Malaysia, Indonesia and Thailand,” it said. – Bernama, July 15, 2021
