Sunday, August 22, 2010

Does it matter where AirAsiaX lists?

26 June 2010

Yes, but the full answer may not be what AirAsiaX or you think it is

THERE is this perception that you get more value for a company depending on where you list it. Investment bankers, especially foreign ones, have sent out sorties to entice Malaysian companies to list overseas through this perverse logic that listing in a more developed and active market will get you better value.

But we will show that such a premise is not true. Those who fall for that fallacious argument do so at their own peril. They not only will NOT get extra value, they are likely to lose a lot of goodwill, and I am not talking accounting goodwill here.

Let’s take the example of AirAsiaX. Both its CEO Azran Osman-Rani and its prime mover and entrepreneur behind it, Datuk Seri Tony Fernandes, have talked about listing the infant airline overseas.

Analysts have blithely alluded to AirAsiaX obtaining better liquidity and valuations if they are listed overseas in markets such as London, Hong Kong or New York but they don’t explain how that is possible.

If they are to be believed, Bursa Malaysia is a market of little or no consequence, the markets here are illiquid, it is not open to investment by foreign funds, world markets are terribly imperfect and valuations here are generally lower than valuations overseas. But all of these are patently untrue.

Malaysia’s bourse is a small one but not insignificant and it has foreign funds invested in it. Some companies are majority owned by foreign funds and investors, and AirAsia – the low cost short-haul airline unlike its cousin AirAsiaX which is long-haul – is probably one of them.

In a world which has become virtually borderless, any fund in the world can invest anywhere and in any listed company. Bursa Malaysia is as open as any other market in the world. So there is no question that any fund will not have access to AirAsiaX if it were listed here. There is no question of liquidity.

Markets, because of their openness, reflect the value of companies listed on them. It does not matter where the companies are listed, their value depends entirely on their operations, future prospects and how they are perceived by the investing public.

In fact, studies have shown that companies better reflect their value when they are listed on their home markets simply because they are better understood and known there, more analysts are likely to follow them and there is likely to be greater interest in the companies if they are good.

Questions: Is AirAsiaX likely to be known better if it is listed in Malaysia or in New York or London or Hong Kong or even Singapore? Is anyone going to think that AirAsia X is English if it is listed in London?

No matter where AirAsiaX is listed, any analyst worth his salt, and in this day and age the better ones have to be, will look at where its operations are, how it is run and its prospects. Then the risk is priced in accordingly. You cannot change the risk of a company by switching its listing, you have to switch its operations.

And do overseas markets have better valuations? This question is irrelevant because as we have pointed out it is the business that counts and not where it is listed but let’s answer it anyway.

The FTSE Bursa Malaysia KLCI, the key Malaysian index, trades at a P/E multiple (total market price divided by net earnings, a measure of value. The higher the P/E, the higher the valuation.) of over 17 times according to Bloomberg data. That’s higher than London’s FTSE 100 index at 13.8X, New York’s Dow Jones (14.2X), Hong Kong’s Hang Seng (15X), and Singapore Straits Times Index (13.3X).

Going by the perverse logic given by some of those roving investment bankers intent on getting AirAsiaX listed overseas, Malaysia gives the best valuation of any of these key markets, which means the company should be listed here!

Surely smart people like Azran and Fernandes are not going to be taken in by these false claims that better value is obtained by listing overseas. That means they have something else in mind when they talk about overseas listing.

If I have to have to speculate, I would say it’s a bargaining process – trying to get the best deal for AirAsiaX to list here. And the people at both AirAsia and AirAsiaX drive a very hard bargain indeed. But sometimes things can boomerang – you may get more than you bargained for.

I am willing to bet that they will NOT make the move to list overseas simply because the best value (loosely speaking that is), and importantly the best goodwill from their customers and the Government, will be obtained by listing here.

Yes, it matters where AirAsiaX lists. It will stand to gain more overall by listing here in Kuala Lumpur than anywhere else.

l Managing editor P Gunasegaram says a company creates value by, well, creating value and showing that it has. What better place to do that if not at home?


By P Gunasegaram

The Star



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