AirAsia Group Bhd's intention to implement a private share offer of up to 20% of its existing 3.34 billion shares is seen to put the group in a more precise direction.
MIDF Amanah Investment Bank Bhd (MIDF) through its research note today said the move also played a role in addressing some of the concerns on AirAsia's financial issues.
According to Bernama, previously, the management of low-cost airlines made conservative projections on the group's capital needs of about RM2 billion to RM2.5 billion to enable it to be in a comfortable position until the end of financial year 2021 (FY21).
“We agree with the management's estimate which is in line with our projection that the group's current and related cash needs are around RM1.2 billion. This is an optimistic projection that covers the cash balance as of nine months 2020 (9M20) and the proceeds from the sale of part of AirAsia India’s interest, recently.
"The amount represents about 5.5 times its monthly capital expenditure rate, which is about RM220.0 million as far as the income results for 9M20," said the investment bank.
According to the MIDF, this will at least help the group as AirAsia management continues to consider permanent and long-term solutions to overcome its financial problems.
Commenting on the second round of funding, the MIDF explained, the group may need to go through some more similar steps for fundraising which also exposes existing shareholders to more sales in the future.
MIDF added that developments on the level of Covid-19 infection in Malaysia and other major markets of AirAsia Group that were worrying, also affected its recovery estimates for the year.
In this regard, MIDF maintained the 'sell' recommendation on the group's shares with the revised target price to 37 sen.
Yesterday, the group plans to execute a private share offer of up to 20% of its existing 3.34 billion shares to raise about RM454.51 million which will help strengthen its financial position.
The gross proceeds will be used for fuel hedging settlement, aircraft lease and maintenance payments as well as general working capital expenditure.
