KUALA LUMPUR (April 26): The corporate exercise to merge the AirAsia airline businesses under AirAsia X Bhd (AAX) is apparently sufficient to offset all of the RM8.7 billion negative equity in Capital A Bhd, according to chief executive officer Tan Sri Tony Fernandes.
Both Capital A and AAX on Thursday unveiled a slew of related party transactions that will eventually see the consolidation of all airline businesses being housed under AAX in a RM6.8 billion share and debt settlement deal.
Using balance sheet numbers as at Dec 31, 2022 (FY2022), Capital A told Bursa Malaysia that this deal alone would give rise to a minimum positive equity of RM492.8 million.
“[Using FY2023 numbers] will be even better,” said Fernandes in a briefing on Friday, “because as I said, we are profitable. In FY2023 and FY2024, [Capital A's equity position is] also much stronger,” he told the audience here.
Capital A’s negative equity position has been the main reason it is being listed as a Practice Note 17 (PN17) company, a category typically meant for financially distressed listed issuers.
The divestment of AirAsia Aviation Group Ltd (AAAGL) is expected to give rise to a pro forma gain of RM4.69 billion to Capital A, while the disposal of AirAsia Bhd (AAB) would result in a gain of RM6.07 billion.
However, the equity position post-merger took into account the RM4.5 billion for the transfer of the AirAsia brand from AAB to Capital A, according to its filing.
This transfer is to pave the way for the initial public offering of Capital A’s branding business, dubbed Capital A International (CAPI), through a special purpose acquisition company (SPAC) on the Nasdaq that was announced earlier this year.
At the press conference, Fernandes told reporters it plans to still move ahead for the branding business spin-off, which is expected to improve shareholders’ equity by RM2.49 billion according to a past stock exchange filing.
“As I mentioned at the end of my talk, there is tremendous [interest for CAPI], and the bankers are now saying there is an appetite for new capital to come in. We are actually effectively out of PN17 now, and we are only going to get a stronger balance sheet.
“So, we don't have to do Capital A International's SPAC, but looking at the interest, looking at building our brand outside, in an American market, and giving Americans a flavour, I think it's well worth doing,” he said.
Formation of AirAsia Group set to materialise by September
AirAsia X told Bursa Malaysia on Thursday that it will first create a new entity — called AirAsia Group Sdn Bhd — to take over the listing status, raise RM1 billion through private placement, before taking over the airline businesses from Capital A.
“So the first thing is get the circulars done for this transaction, which I hope will be done in two weeks,” said Fernandes on Friday.
“Then we have to submit it to Bursa Malaysia for approvals of the circulars, which I hope can be done quite quickly. Then we have 21 days to call the EGMs (extraordinary general meetings) from both companies to approve this transaction.
“Once that's done, because we're doing a dividend in specie, we have to get the court's approval for a capital reduction. And then we can list [AirAsia Group]. So the timing of the formation of the aviation group, our present timeline is about September,” he added.
Apart from addressing Capital A’s PN17 status, Fernandes said the slew of corporate exercises are also designed to catalyse further growth for the upcoming AirAsia Group.
“The reason for putting this together is driven by growth and revenue, and to utilise the assets that we have. It is not driven by PN17, not driven by costs. It is driven by the top line, and the routes that will open up for AirAsia.
“This is a result of what we wanted pre-Covid,” said Fernandes. “Now, it ties up very nicely for Capital A to have a stronger balance sheet and be able to come up with a regularisation plan,” he said.