This article first appeared in The Edge Financial Daily, on April 6, 2016.

KUALA LUMPUR: AirAsia Bhd’s share price continued its upward climb in active trading on Bursa Malaysia yesterday, as the market brushed aside concerns that a proposed RM1.01 billion share placement would have a dilutive effect on its earnings per share (EPS).

AirAsia shares climbed to an intraday high of RM1.99 before closing to a nine-month high of RM1.97 per share, up 4 sen or 2.07% from Monday’s closing, with 59.17 million shares changing hands. It was the fourth-most actively traded counter on Bursa, with a market value of RM5.48 billion.

AirAsia’s call warrants under AIRASIAC31 also closed 6.45% higher at 16.5 sen per share yesterday, with 11.78 million shares done, emerging as one of most actively traded counters on the exchange.

Last Friday, AirAsia announced a proposed placement of 559 million new shares to its two founders — Tan Sri Tony Fernandes and Datuk Kamarudin Meranun at RM1.84 apiece to potentially raise RM1.01 billion, which will increase its share base by 20% once completed by the third quarter of 2016. The exercise is subject to shareholders’ approval.

While there are concerns that the proposed share issue may not sit well with its minority shareholders as it would result in a dilution in its EPS, industry observers said the exercise would also allow shareholders to buy more shares from the market.

Analysts tracking the stock have deemed the subscription price of RM1.84 as fair, and that the placement would see a reduction in the budget airline’s debt by RM342 million, thereby reducing its financing costs by RM10.7 million.

It is understood that the reason why AirAsia did not turn to a rights issue to raise money is that its other substantial shareholders — the Employees Provident Fund Board (EPF) and Wellington Management International Ltd — may not be keen to subscribe to the rights issue and may oppose such an exercise.

Notably, EPF and Wellington have been paring down their stakes in AirAsia.

On March 30 and 31, Wellington offloaded a total of 7.09 million shares in the airline in two blocks, bringing its stake to 5.094% or 141.77 million shares compared to 7.906% on Dec 29, 2015.

EPF also disposed a total of 0.9% stake or 25.07 million shares this year as at March 7, resulting in the fund ceasing to become a substantial shareholder with a 4.98% stake or 138.68 million shares.

However, just two days before AirAsia’s shares were suspended pending for the placement exercise announcement, EPF had on March 30 acquired a 0.17% stake or 5.97 million shares in the airline, resuming its substantial shareholder status by holding a total of 5.15% stake or 143.22 million shares.

Shares in AirAsia X Bhd (AAX) and its warrants A under AAX-WA also saw active trading yesterday, with AAX shares touching an intraday high of 31 sen before settling down 1.5 sen or 5.17 % to its 10-month high of 30.5 sen. It was the fifth-most actively traded stock with 58.25 million shares done, bringing its market capitalisation to RM1.27 billion.

AAX-WA, meanwhile, was the top-most active counter with 85.39 million units changing hands. It closed two sen or 14.82% higher to 15.5 sen.