AirAsia plans up to $300m bond issue & sale of jets as share price tumbles

Visual from the company website

Asia’s largest budget airline, AirAsia Bhd plans to raise funds for loss-making associates by issuing up to $300 million in bonds and may sell planes to help cut group debt, CEO Tony Fernandes told investors in a letter.

In a copy of the letter that was obtained by Reuters, Fernandes said the group plans to issue as much as $150 million in convertible bonds at each of its Philippine and Indonesian associates. It may also sell and lease back up to 20 aircraft in the group’s fleet this year.

The comments in Fernandes’ letter came days after Hong Kong-based firm GMT Research issued a report questioning AirAsia’s accounting practices, Reuters noted.

In the report, GMT had said that AirAsia used transactions with associate companies to boost earnings, startling investors and leading the airline’s shares to fall to a five-year intra-day low on June 12.

AirAsia declined to comment on the GMT report, and a spokesman from the company declined to comment on the letter.

Although AirAsia is among the leading budget carriers globally, in the world’s fastest-growing aviation market, the airline’s business has been squeezed in recent times by competition with regional rivals, such as Malaysia Airlines Bhd, the Jetstar unit of Australia’s Qantas Airways Ltd, Indonesia’s Lion Air and subsidiaries of Singapore Airlines Ltd.

“Some of the details here are still work-in-progress but what is written will more or less be reality,” Fernandes said in the letter. “Due to the recent movement in our share price, we are sharing the details with you earlier than planned,” he commented, without making reference to the GMT report.

AirAsia, the biggest Asian customer of plane maker Airbus, reported a net loss for October-December 2014, and is taking on fewer new aircraft to manage capacity.

It has previously said it plans to list the Philippine and Indonesian associates to raise funds to develop business, but has been hit by weaker demand after a plane operated by its Indonesia affiliate crashed in December, killing all 162 people on board.

Fernandes sought to reassure investors that business is improving in the letter, commenting that: “We believe that 2015 will be a very good year on the back of a better operating environment and a much more rational market. We have shown you good progress in 1Q15 … We believe in results, not words.”

AirAsia’s shares dropped 1.1 per cent at today’s market close. The stock has fallen a total of 14.8 per cent since GMT published the report on June 10.

“I guess there is probably a bit of scepticism, they are saying ‘We’re going to be bringing in a couple of investors to invest in equity (in associate companies), and also in convertible bonds’, so they can use the money raised to pay back into the company’s balances,” Timothy Ross, an analyst at Credit Suisse told Reuters.

“But I would ask, who is going to invest in a business that doesn’t make any earnings, just to see their investment going up to the parent company?”

Fernandes said in the letter that AirAsia is looking to take the loss-making associates in Philippines and Indonesia public in 2017, seeking valuations of about $700 million for the Indonesia firm and $600 million for the Philippines business.

“We target to float 20 per cent of the shares raising a minimum of $150 million (in each),” Fernandes added.

Also read:

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AirAsia in talks with private equity firms to sell stake in loyalty programme

AirAsia and ECM Libra co-founders set up startup accelerator Tune Labs

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.