Thursday May 24, 2012
MAS bonds secured
By B.K. SIDHU and LEONG HUNG YEE
PETALING JAYA: Malaysia Airlines (MAS) has secured investors, mostly in the form of government-linked investment companies (GLICs), to take up the bonds it will be issuing, including the debt papers to be issued by the special purpose vehicle (SPV) to fund MAS' aircraft purchases, reliable sources said.
“Those that will subscribe to most of the bonds, especially for the government-guaranteed RM5.3bil bonds, are likely to be institutions such as the Retirement Fund Inc (KWAP), Employees Provident Fund, Armed Forces Fund Board (LTAT) and Permodalan Nasional Bhd. Other takers may include unit trust and insurance companies,” one banking source said.
Another source revealed that even before MAS announced its financing plan earlier this week, its top management had spoken to a number of institutional investors and secured the support from the GLICs.
“The market is also flush with funds, so there will be takers for the total RM7.8bil bonds that will be issued this year,” the source said.
But an investment banker said that even though it looked like the funding would come through, “investors are bound to want to be assured of their returns before committing money to this. Note that aviation is a cyclical business and a lot depends on the outlook of the sector and the global economic climate.”
Added one industry player, “The question that looms is How fast can MAS turn around to ensure it is able to pay the coupon rate for the bonds that investors would expect?'”
Analysts see the bond issue as a “much-needed lifeline'' for MAS to sustain itself over the next one to two years since its cash in hand is fast depleting. But they also warned that if MAS could not improve its performance operationally and financially, no amount of financial help could sustain it going forward.
MAS parent Khazanah Nasional Bhd managing director Tan Sri Azman Mokhtar gave reassurance of Khazanah's commitment to MAS' recapitalisation plan but said it hinged upon the national carrier's performance.
“We have stated our commitment, but it's a contingent form of commitment. We can put in money but we also need to see results because it is public money that we are talking about.
“It cannot be a bailout. We need to see results coming through. We need to see unions, management, board and all stakeholders working together,” he said after Axiata Group Bhd AGM in Kuala Lumpur yesterday. (Azman is Axiata chairman.)
Azman said MAS' capital raising plan was quite large but also quite comprehensive. “And within that, we talked about looking at various sources for funding, not just equity. In terms of equity provider, we remain the major shareholder.”
However, he did not provide the amount Khazanah was ready to commit to MAS. “The capital equity portion is RM2bil to RM2.5bil. But we won't be subscribing to all of it. Funds will come from other parties as well.”
MAS announced on Tuesday a complex RM9bil financing plan which involved MAS issuing a RM2.5bil 10-year sukuk issue, the Minister of Finance Inc's SPV issuing 20-year RM5.3bil government-backed bonds and a RM1.2bil loan facility to pay for aircraft deliveries and working capital. This financing plan is critical to put the ailing airline on a firmer footing.
The airline's books are still marred with red ink and on Tuesday MAS reported its fifth consecutive quarter of net loss of RM171mil for the first quarter ended March 31, 2012 amid a RM199mil forex gain. But when stripped of the non-cash items, MAS' core net loss for the quarter was RM347mil.
Getting a financing plan in place was crucial but more critical is for MAS to come up with a business plan for it to chart its growth strategy, and according to sources, the new team at MAS is hoping to unveil details of a new plan in June.
Next month MAS will issue the first tranche of RM1bil bonds of the RM2.5bil sukuk issue, and the remaining RM1.5bil is likely to be issued within three months. On the part of the Government, it will issue the RM5.3bil bonds in tranches within this year.
The Government is issuing the bonds via the SPV to fund eight aircraft purchases that include the six A380 superjumbos and it will then lease the aircraft back to MAS.
The RM9bil financing plan takes care of MAS' RM6bil capex this year and about RM3bil for next year, though sources said there might be a need to raise “a bit more financing next year.''
The RM1.2bil loan facility that MAS will undertake is for its wide body aircraft deliveries.
Asked if Khazanah had considered a buyout of MAS, Azman said Khazanah had reviewed many things, including taking MAS private.
“On balance, keeping companies listed is good. Generally, we prefer to keep all our companies listed because it provides more transparency and more public scrutiny.”
On the other hand, Azman said Khazanah had also taken companies private when the value was not reflective. “Like UEM Group where we took some of the companies private but we listed some of them. We have also worked with Usaha Tegas Sdn Bhd to take Astro All Asia Networks plc private because the market value was not reflective of its true value. At some point in future, we may relist it. But on balance, we prefer to keep companies listed,” he said.
“I think a company like MAS will remain. We need to solve that. It is a difficult industry. It's just about 3% of our portfolio but it is important to the country,” Azman said.