AirAsia shares rise on report budget carrier may be taken private

[KUALA LUMPUR] AirAsia Bhd climbed the most in almost three weeks in Kuala Lumpur trading after Reuters reported that founders of Southeast Asia's biggest low-cost carrier are sounding out investors about taking the company private.

AirAsia shares rose 5.6 per cent to close at 1.32 ringgit (S$0.44). The company "has no knowledge" of any plans to take it private, AirAsia said in a statement to the stock exchange.

Founders of AirAsia, including group chief executive officer Tony Fernandes, are sounding out investors to take the company private in a management-led buyout and are working with banks to secure financing, after the shares fell to their lowest levels in seven years, Reuters said, citing unidentified people familiar with the matter. AirAsia's stock has dropped about 50 per cent this year, making it the second-worst performing airline in Asia.

"There's speculation of a privatisation, so the shares are reacting," Ang Kok Heng, chief investment officer at Phillip Capital Management Bhd, which manages US$630 million, said in Kuala Lumpur. "I don't think it's easy. A lot of these shares are owned by foreign funds. It needs a lot of money to take it private, unless they can pair up with some strategic investor who would take up a substantial block."

Taking AirAsia private will cost 2.84 billion ringgit at current share prices, Mohshin Aziz, an analyst at Malayan Banking Bhd, wrote in a note on Wednesday. The company has a market value of 3.7 billion ringgit.

About 108 million shares changed hands today, compared with the 31 million average daily volume of trading in the past six months through Tuesday. Nineteen of the 24 analysts whose ratings are captured by Bloomberg recommend investors buy the stock. Three say hold and two advise clients to sell the shares.

AirAsia is in talks with certain bankers to partially finance a share buyback, according to the stock exchange statement. Last month, the airline said it planned to buy back 10 per cent of its capital.

Shares of AirAsia X Bhd, an affiliate of the company, rose 5 per cent in Kuala Lumpur.

A June 10 report by GMT Research questioning AirAsia's accounting sent the stock to its lowest-ever level on Aug 26. Mounting competition, a plane crash at its Indonesian venture in December, and a requirement by Indonesia's government to boost the equity position of the local operation or have its license revoked also hurt the shares.

AirAsia shares reached a 16-month high on Dec 26, 2014, two days before the group's first plane crash caused the stock to plunge 70 per cent to the record low in August. Concerns then surfaced about its accounting method and the ringgit weakened. The stock's tumble convinced several funds to add the stock to their portfolio, helping a 69 per cent climb from its lowest level.

"At some point during the shares slump, that might have triggered talks about it. It would be reasonable for them to think about it," said Pong Teng Siew, head of research at Inter- Pacific Research Sdn. in Kuala Lumpur. "The privatization makes sense if valuations persist below the IPO levels." Mr Fernandes, 51, assumed 40 million ringgit of debt when he bought AirAsia for 1 ringgit in December 2001, according to the airline's website. Prior to running AirAsia, Fernandes was an employee at Richard Branson's Virgin Group. The airline had two old aircraft when Fernandes took charge.

Now, the budget carrier has more than 100 planes with operations spanning India, the Philippines, Indonesia and Thailand. Yesterday, the Sepang, Malaysia-based company got the Japan government's approval to start flights in the country.

"This talk on privatization has been circulating for a while, but we are inclined to think it is not probable," Mr Mohshin, who has a buy rating on the stock, wrote in a note Wednesday. "Even if this news has some truth to it, we think it is a challenge to secure financing."

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