This article first appeared in The Edge Malaysia Weekly on February 19, 2024 - February 25, 2024

THE listing of Capital A International (CapAI) in New York has been in the works since Capital A Bhd announced a deal that would see Aetherium Acquisition Corp, a special purpose acquisition company (SPAC) that listed on the Nasdaq in November last year, acquire the entire share capital of CapAI in a business combination.

Sources tell The Edge that the parties involved are close to completing the deal, which will see all Capital A brands — including AirAsia Bhd, BigPay, MOVE and Teleport — transferred to CapAI and be valued at about US$1.3 billion (RM6.2 billion).

“This will allow Capital A to monetise its brands and position itself beyond aviation,” says one of the sources who is working on the deal.

“The investment thesis is that this is an opportunity for investors to participate in a large, Asean-wide brand,” says another.

Recall that on Nov 1, 2023, Capital A entered into a letter of intent with Aethereum (Nasdaq: GMFI) for a proposed business combination that would see the latter acquire the entire share capital of CapAI and eventually list it on the Nasdaq. According to the announcement, CapAI would acquire 100% equity interest in Brand AA Sdn Bhd, the registered proprietor of all the rights of the AirAsia brand and is principally involved in the management of the brand.

Note that on May 31 last year, AirAsia and AirAsia Aviation Group Ltd (AAAGL) entered into a master brand licensing agreement (MBLA), and subsequently on June 27, AirAsia, Capital A and Brand AA executed an intellectual property (IP) assignment agreement for the transfer of all the rights of the AirAsia brand to Brand AA.

Under the MBLA, Brand AA has the right to collect royalty fees from AAAGL, the exclusive licensee of the AirAsia brand for its aviation-related business. Meanwhile, AAAGL has the right to collect a sublicence royalty fee from the airline operating companies under Capital A and its subsidiaries for the use of the AirAsia brand.

However, according to the sources The Edge spoke to, the business combination will involve the transfer of the IP rights of all Capital A brands, and not just the AirAsia brand, to CapAI. The AirAsia brand is the largest of all the brands under Capital A.

“CapAI will look at growing the brands beyond aviation. They are also thinking of expanding the brands into the healthcare industry,” says one of the sources.

Questions sent to Capital A for their confirmation of the deal went unanswered at press time. However, it is believed that a definitive agreement between CapAI and Aethereum will be announced as early as this week.

Following the business combination, Capital A will hold a 46.5% stake in Aethereum, while its existing shareholders will own 48.5% of the company.

The royalty fee that CapAI is looking at is between 0.5% and 1% of the revenue of the companies. For illustrative purposes, 1% of Capital A’s revenue for the financial year ended Dec 31, 2022, was RM66 million.

For the nine months ended Sept 30, 2023, Capital A made RM9.9 billion in revenue, while AirAsia X Bhd made RM1.71 billion.

The listing of CapAI on the Nasdaq will be part of the proposed plan undertaken by Capital A to regularise its financial position, to have its Practice Note 17 (PN17) status lifted.

Capital A — then known as AirAsia Group Bhd — fell into PN17 status under the Main Market Listing Requirements of Bursa Malaysia on July 8, 2020, when its external auditor Ernst & Young PLT issued an unqualified audit opinion with emphasis of matter on material uncertainty related to the business as a going concern in respect of its audited financial statements for the financial year ended Dec 31, 2019.

Its shareholders’ equity on a consolidated basis as at March 31, 2020, was 37% of its share capital (excluding treasury shares). After getting an 18-month relief period from Bursa Malaysia, Capital A’s appeal to have it extended beyond Jan 7, 2022, was dismissed by the capital market regulator.

Capital A announced on Jan 19 this year that Bursa Securities had granted it an extension until June 30, 2024, to submit its regularisation plan to the relevant regulatory authorities.

As at Sept 30, 2023, Capital A had accumulated losses of RM10.33 billion, and RM8.68 billion in share capital. The group has a negative total equity value of RM10.53 billion.

According to the sources, the proceeds raised from the proposed listing will be partly used to pare down Capital A’s debt. While the numbers cannot be confirmed at this point, the sources say RM1.8 billion in debt will be settled through the issuance of redeemable convertible securities (RCS) to the creditors.

Capital A had a total of RM3.01 billion in non-current borrowings and RM762.6 million in current borrowings as at Sept 30, 2023. The group also had RM1.73 billion in non-current term loans.

Meanwhile, part of the proceeds from the proposed listing will be distributed to the existing shareholders of Capital A, say the sources. This is likely to be in the form of shares in CapAI rather than a cash dividend.

Capital A has been growing a slew of aviation-related businesses such as Santan, the in-flight meal catering operation that doubles as an offline café; Teleport, an air logistics business; GTR, an airport ground services company; and Asia Digital Engineering, an airline engineering and maintenance services firm.

It also has non-aviation businesses such as BigPay, which operates a money app, and the AirAsia SuperApp, which integrates a variety of services, from travel and ride-hailing to ticketing services and insurance, all on a single platform.

With the group having the ambition to grow its brands beyond the aviation sector, will Capital A still be known as an aviation group? Or will it be a diversified conglomerate whose businesses stretch far and wide across the region. 

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