AirAsia down on concerns over diluted earnings

05 August 2009

PETALING JAYA: AirAsia Bhd shares, which have been climbing since early last month, took a tumble after the budget carrier announced plans to sell 481.14 million new shares to pare down its debt.

AirAsia was among the day’s top losers, shedding 9 sen, or 5.84%, to RM1.45, on volume of 9.5 million shares.

The counter hit a 12-month high of RM1.57 on Monday.

An analyst said the price drop was due to the private placement announcement as the exercise would dilute AirAsia’s earnings.

In a filing with Bursa Malaysia on Monday, the company proposed a private placement of up to 481.14 million new 10 sen shares, which could potentially raise gross proceeds of up to RM601.43mil.

The proceeds will help bolster its cash reserves to the targeted RM1bil.

The placement will reduce the airline’s net gearing from 3.71 times to 2.56 times based on its unaudited accounts as at March 31.

Chief executive officer Datuk Seri Tony Fernandes was quoted by Bloomberg as saying the proceeds would be used in part to repay loans taken to help pay for as many as 175 new Airbus SAS planes as the airline added routes to China and India.

ECM Libra Investment Research said the proposed exercise would enlarge the budget carrier’s outstanding share base up to 2.88 billion shares and have a dilutive effect on earnings.

“As a result of the enlarged share base, on a maximum case scenario, our financial year ending Dec 31 (FY09) earnings per share (EPS) would decrease by 17.8% to 20.7 sen from 25.2 sen.

“Our EPS estimates for FY10 and FY11 would also be reduced by a similar quantum to 21.7 sen and 25.8 sen accordingly,” the research house said.

ECM Libra said AirAsia’s gearing would also be “reduced significantly” as a result of the proposed exercise.

It said the airline’s net gearing may decrease to 2.5 times from 3.71 times, representing a significant 32.6% drop.

“We are optimistic of this proposed exercise and opine that the 17.8% dilution in EPS would be offset by the 30.9% decrease in net gearing,” it added.

Meanwhile, CIMB Investment Bank Bhd, the adviser and placement agent for the exercise, clarified yesterday that the issue price of AirAsia’s placement shares would be fixed at a date to be determined later by way of book-building exercise.

In a statement to Bursa Malaysia, CIMB Investment said the book-building exercise would be undertaken by placement agents appointed or to be appointed by the company after it had received approvals from the stock exchange and shareholders.

“As such, the issue price of the placement shares has not yet been fixed,” it said.

For illustrative purpose only, based on the five-day weighted average market price of AirAsia shares of RM1.46 (up to and including Aug 3), the proposed private placement would raise gross proceeds of up to RM702.47mil.

CIMB Investment said the gross proceeds would be subject to change at the price-fixing date to be determined later.