KUALA LUMPUR (Nov 1): Capital A Bhd is seeking to float its AirAsia brand royalty business and aircraft leasing unit in the US by injecting these operations into a Nasdaq-listed special purpose acquisition company (SPAC), aiming for an indicative valuation of US$1 billion (RM4.77 billion), as part of its plans regularise its financials.
The plan came after sister company AirAsia X Bhd’s application for relief from having to submit and implement a regularisation plan for its Practice Note 17 (PN17) status was rejected by Bursa Securities.
While the specifics of the restructuring were never disclosed, it was understood that the restructuring would have involved a share swap and a valuation of goodwill of Capital A's airlines.
In an interesting twist, Capital A said on Wednesday that it would instead unlock the value of the AirAsia brand by floating the brand management business on the Nasdaq, and expects a one-off gain from the listing exercise to improve its negative shareholders' equity, which stood over RM10 billion as at June 30.
Notably, on the same day, Capital A was granted an extension until Dec 31, 2023 to submit its regularisation plan to the regulatory authorities.
In a separate filing, Capital A said it had entered into a letter of intent with the SPAC, Aetherium Acquisition Corp (GMFI), for a proposed merger between the latter and an upcoming Cayman Islands entity known as Capital A International (CAPI) to be set up by the low-cost carrier operator.
After incorporating CAPI, this special purpose unit will acquire Brand AA Sdn Bhd and Fleet Consolidated Pte Ltd from Capital A. Brand AA, formerly known as AAD Data Sdn Bhd, is wholly owned by Capital A, while Fleet Consolidated is a Singapore incorporated private company.
Brand AA is a brand management company. It is the registered proprietor for all the rights under the AirAsia brand.
Under a master brand licensing agreement dated May 31 this year, Brand AA has the right to collect royalty fees from AirAsia Aviation Group Ltd, Capital A’s aviation division.
Fleet Consolidated, meanwhile, will primarily be responsible for the procurement and delivery of the requisite aircraft for the aviation group based on the agreed allocation plan.
The proposed listing was leaked by the Financial Times last month, citing unnamed sources, reporting that Capital A is planning to raise over US$1 billion in debt and equity, while listing some businesses via GMFI.
Capital A told Bursa Malaysia on Wednesday that both parties are expected to complete due diligence and negotiations for the execution of a definitive agreement within three months.
“In connection with the definitive agreement, the parties will negotiate in good faith, and mutually agree on a minimum cash condition (additional net cash proceeds), which will be included in the definitive agreement,” it said.
“GMFI will ascribe to CAPI for purposes of the proposed business combination an indicative equity value of US$1 billion and the additional net cash proceeds received by CAPI, if any, prior to the signing of the definitive agreement and retained by CAPI until the closing of the proposed business combination,” it added.
Upon the completion of the merger with GMFI, Capital A said, it will have exposure to US capital markets through the Nasdaq.
“The proposed business combination will result in the AirAsia brand and the leasing businesses of the group being listed and traded on the Nasdaq,” it said, adding that it will also be able to indirectly participate in the profit from the US-listed entity.
Apart from the nod of capital market regulators in both Malaysia and the US, the corporate exercise also requires Capital A shareholders’ approvals via an extraordinary general meeting, and holders of the group’s seven-year redeemable convertible unsecured Islamic debt securities of RM974.5 million.
Capital A chief executive officer Tan Sri Tony Fernandes said the exercise marks the group’s first step to venture out of Asean in terms of capital raising.
“This is a coming-of-age moment for Capital A, which has morphed from AirAsia into a low-cost, value-driven aviation and travel services group of five entities, the first of which that’s coming to the public market would be CAPI,” he said in a statement on Wednesday.
“Our proposed business combination with Aetherium serves as a testament to the growth opportunities ahead. The Asean region in recent years has emerged as one of the world’s most dynamic and fastest-growing economic hubs.
“Yet, there are limited vehicles for which global investors can participate in the vibrancy of this pivotal market. Leveraging the strength and reach of the AirAsia brand, CAPI will offer an exceptional opportunity to harness the investment potential of the region,” he added.
GMFI CEO Jonathan Chan said the new entity will present investors with an opportunity to tap into growth of the Asean region, with a “high-quality” profitable asset and “exceptional” management team.
When contacted, industry sources estimated that the brand licence fees charged by Capital A on its four airline operations in Malaysia, Thailand, Indonesia and Philippines respectively are about 1.0% of its revenue.
“There are not much details of the royalty they are going to charge, but based on 1.0%, we estimate the licensing could earn the Nasdaq entity about US$40 million a year, which based on a US$1 billion valuation seems a bit rich to me,” said an aviation analyst, who declined to be named.
“In terms of the aircraft leasing business, Capital A’s existing aircraft are already leasing from third parties. Therefore, pending more details from the management, we are not sure if there will be much income from the additional aircraft leasing from 2024 onwards,” the analyst added.
Shares in Capital A closed unchanged at 82.5 sen on Wednesday, valuing the group at RM3.48 billion.