Business

Wednesday March 6, 2013

MAS ready for takeoff to new heights

By LEONG HUNG YEE
hungyee@thestar.com.my


Shareholders approve rights issue and capital restructuring

<B>Ahmad Jauhari:</B> ‘We believe MAS is worth preserving.’ Ahmad Jauhari: ‘We believe MAS is worth preserving.’

PETALING JAYA: Malaysia Airlines (MAS) has cleared the last hurdle to undertake a rights issue to raise RM3.1bil, having obtained shareholders' approval at its extraordinary general meeting (EGM) yesterday.

“We are pleased with the support from our shareholders. This is part of our recovery plan. We are actively resetting our business model and rebooting our financials,” group chief executive officer Ahmad Jauhari Yahya said at a briefing after the EGM.

At the EGM, shareholders also approved the flag carrier's proposed capital restructuring, which include a par value reduction and a reduction of the share premium account of MAS. They have also approved the proposed amendment to the memorandum and articles of association of MAS.

Some shareholders took the opportunity to ask some questions during the two-hour meeting. Voting was conducted by a show of hands.

Ahmad Jauhari said shareholders raised concerns on the carrier's sustainability of its business model, moving forward.

Under its capital-restructuring plan, the airline will undertake a par value reduction of 90 sen of its shares from RM1 to 10 sen. The par value reduction will be used to reduce the accumulated losses of RM8.19bil as at Sept 30, 2012.

The proposed capital restructuring and renounceable rights issue to raise RM3.1bil is part of MAS' financing programme to strengthen its balance sheet, where it carries accumulated losses of RM7.86bil as at Dec 31, 2011. MAS had issued an RM1.5bil perpetual junior sukuk programme last year.

“With the funding programme, we should have a stronger balance sheet to finance new aircraft and take advantage of the growth in the region,” Ahmad Jauhari said.

He said the rights issue would be utilised for capital expenditure (capex), partial repayment of borrowings and working capital.

The repayment of MAS' existing loans with the proceeds would lower the firm's gearing ratio from some 5.44 times currently to below two times, he said.

However, he said, the gearing ratio would not stay low because of capex, but it would still put MAS on a “good footing for restructuring.”

“It will help to improve our gearing ratio. Ideally, we are looking at 1.5 times to 1.7 times. The rights issue will only reduce a small amount (of accumulated losses), and, hopefully, our operating profit will offset it moving forward,” Ahmad Jauhari said.

The corporate exercise is expected to be completed by the first half of this year. The rights issue price will be determined closer to the date.

According to the circular to shareholders, the funds raised from the proposed rights issue, amounting to some RM1.33bil, will be used as working capital, while RM986.85mil will go towards capex.

The company will use RM777mil to pare down its borrowings, which stood at RM8.09bil as at Sept 30, 2012.

“MAS has to strengthen its balance sheet to enable the group to expand further,” Ahmad Jauhari said.

He explained that with the rights issue, it would have a stronger balance sheet to enable the group to have better access to financing. “You're a non-starter if your gearing is high.”

Asked if the Employees Provident Fund (EPF) would subscribe to the rights issue, Ahmad Jauhari said EPF representatives were present at the EGM to render their support, but he was unsure if the pension fund would subscribe according to its entitlement.

MAS' major shareholder Khazanah Nasional Bhd, which holds a 69.37% stake, has already expressed its commitment to taking up its portion of the rights issue.

“We believe MAS is worth preserving. It has deep intrinsic value to the country's economy,” Ahmad Jauhari said.

On its turnaround plan, he said MAS had a 24-month plan starting from early 2012. “We're half way through (the plan). The last two quarters have shown positive improvement. The operating environment, nevertheless, remains challenging.”

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