AirAsia needs more than one round of fund raising, says CGS-CIMB Securities

CGS-CIMB Securities also expects a right issue would likely take place in the next three months as without the equity issue, AAGB might fall into a net liability position by end financial year 2021. — Reuters pic
CGS-CIMB Securities also expects a right issue would likely take place in the next three months as without the equity issue, AAGB might fall into a net liability position by end financial year 2021. — Reuters pic
KUALA LUMPUR, Nov 25 — CGS-CIMB Securities Sdn Bhd expects AirAsia Group Bhd’s (AAGB) one round of fund raising exercise will unlikely be enough, and the low-cost airline may need to raise more funds to keep its business afloat.

In a note today, the research firm also said AAGB is living on the edge as it has no support from the government.

Based on current assumptions on traffic recovery, the RM2.4 billion fund from the capital raising exercise should be just barely enough for the group, but is cutting it very thin, it said.

“The high level of infections in Malaysia, Indonesia and the Philippines is worrisome and could postpone the recovery.

“Also, AirAsia Indonesia (IAA) and AirAsia Philippines (PAA) are left to their own devices, but if they fail to raise new debt, AAGB will likely have to pump in cash,” it said.

CGS-CIMB Securities also projected the fourth quarter would be tough for the airline group in view of its low cash position.

AAGB’s third quarter 2020 (3Q20) core net loss of RM1.4 billion was more than double the RM600 million loss in the same quarter last year and only marginally lower than the RM1.5 billion loss in the second quarter of 2020 despite the partial domestic travel recovery seen for Malaysia AirAsia (MAA), IAA, PAA and AirAsia Thailand (TAA).

Although AAGB reported RM2.6 billion in net loss for a cumulative nine months of 2020 (9M20), its cash position declined by “only” RM2 billion, by deferring payments to its suppliers and aircraft lessors.

Aircraft lease instalments and debt principal repayments totalled RM761 million in the first quarter, but only RM300 million was paid in the next two quarters.

AAGB, which also raised cash by selling tickets and its spare engines in 3Q20, saw its cash balance fell from RM2.6 billion as at December 31, 2019 to RM618 million at end-September 2020, which could last less than three months at the actual burn rate of RM222 million per month during 9M20.

“The reimposition of the conditional movement control order from October to November in Malaysia has curtailed domestic travel again, coinciding with the progressive resumption of lease instalments, making the fourth quarter of 2020 tougher than expected,” it added.

CGS-CIMB Securities also expects a right issue would likely take place in the next three months as without the equity issue, AAGB might fall into a net liability position by end financial year 2021.

As at 3.13pm, shares of AAGB rose two sen to 73 sen. — Bernama

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