Wednesday June 13, 2012

MAS' RM2.5bil sukuk well-received


Enough takers for MAS bonds, it will unveil new business plan next week

PETALING JAYA: Malaysia Airlines (MAS) has found enough takers for its RM2.5bil 10-year perpetual junior sukuk of which the first tranche of RM1bil bonds had been fully-subscribed by Kumpulan Wang Persaraan (Diperbadankan) (KWAP).

With the first tranche of the funding in place and MAS having received firm commitments for the remaining RM1.5bil issue, the next big step for the airline is to unveil its business plan, and that according to MAS group CEO Ahmad Jauhari Yahya would be announced on June 21, the same day as the airline's AGM.

The business plan is crucial for the airline going forward since the previous plan that was announced in December was linked to the share swap, which has since been unwound.

“The focus of the new business plan is likely to grow the regional business as there is where the growth is. To MAS advantage, it is getting a newer fleet including the flagship A380 aircraft, but still its biggest challenge would be to rebuild, cut cost and boost sales. It really needs to drive up sales and a lot of emphasis has to be put in that direction,” said a source.

Light moment: (from left) Maybank Investment CEO Tengku Datuk Zafrul Tengku Aziz, Ahmad Jauhari and Rashdan at the press conference.

For over a year now MAS is without a head of sales but next week, it is learnt that Duncan Bureau of WestJet will take the on job. Those in the know claim that with the new business plan, there will also be a re-organisation in early July to realign the best man for the job so that the reform could begin.

Yesterday the airline also announced the departure of its deputy group CEO Mohammed Rashdan Yusof.

That aside, Jauhari told reporters yesterday that “we are grateful to KWAP for being the first subscriber of the RM1bil perpetual sukuk, and we have also obtained firm commitments for the remaining RM1.5bil issue... our entire sukuk programme is fully subscribed.”

“The sukuk was the foundation of MAS funding plan, which in turn is the bedrock from which MAS would imminently launch its programme of planned operational improvement initiatives on its route back to sustainable profitability,” he said.

Jauhari declined to name the takers for the remaining RM1.5bil issue but sources said it would not be surprising if institutions such as Lembaga Tabung Haji, Permodalan Nasional Bhd and the Employees Provident Fund become takers of the Islamic papers.

For the sukuks, MAS is offering a long-term funding rate of 6.9% for the RM2.5bil bonds which some say is not cheap, although it is comparable to Thai Airways International's 7.0% for its own issue.

An analyst said it was to be expected that local institutions would be takers of the bonds that MAS and the Government would be issuing for the airline. Funding for MAS is “a necessity, it is for MAS survival and now that part of the funding equation has been sorted, it is up to MAS to push for reforms and rebuild the airline so that it can get back decent returns that investors expect of it.”

Rashdan believed a perpetual sukuk was the best option for the airline as “it captures the essence of equity at a relatively lower cost of capital compared with common equity”. For us it is the cheapest form of capital and it is a great deal for us.”

The perpetual junior sukuk programme was arranged by Maybank Investment Bank Bhd and its CEO Tengku Datuk Zafrul Tengku Aziz said this was the first ever Islamic sukuk for the aviation industry.

With the first part of the financing in place and when combined with the RM1bil bridging loan MAS had obtained from CIMB Bank recently, the airline now has enough funds to the tune of RM2bil to sustain its operations over the next two years.

The RM2.5bil sukuk is also part of the extensive RM9bil financing plan MAS had announced last month. The other parts of the financing plan includes the Government via a special purpose vehicle issuing RM5.3bil bonds to fund the purchase of six A380 and two A330 aircraft, and MAS obtaining a RM1.2bil commercial loan to pay for its wide body aircraft purchases for 2012. The entire RM9bil fund raising exercise has to be secured this year in order for MAS to pay for its 23 aircraft purchases for this year and also working capital.

Asked when the RM5.3bil bonds would be issued, Jauhari said “plans are being finalised and it should be before the year is out.”

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