Monday, April 22, 2013

What's NEXT For MAS ...


It has fixed its rights issue price at 23 sen per shares for every one existing share held. The cash will enable MAS to raise gross proceeds of rm3.07 billion. MAS also gave a 34.3% discount from its theoretical ex rights price of 35 sen for its rights issue price.

The rights issue will be undertaken on a minimum subscription basis based on Khazanah Nasional Bhd’s full entitlement to the rights issue. In the event only Khazanah subscribes for its full entitlement to the rights shares, the rights issue will result in the issuance of 9.27 billion rights and will raise gross proceeds of rm2.133 billion.

Khazanah holds 69.37% stake in MAS.

The fund-raising exercise is crucial for the growth and efficiency of the national airline in an increasingly competitive aviation industry.

The capital raised from the rights issue would be spent on growing its fleet towards a more cost-efficient operation besides paring down its debt.

MAS' quarterly financial performance has been improving of late and that the market has been taking it positively.

Even if the minorities did not fully take up the proposed rights issue, market observers did not foresee any problems, as Khazanah Nasional Bhd, which has a 69.37% stake, had unconditionally committed to taking up its full entitlement, and could also potentially take up the entire entitlement of the minorities as well.

Should the take-up rate for the offer by the minority shareholders be low, Khazanah might end up0 holding more of MAS than the maximum 75%. Further, to maintain MAS' listing status, the company would rectify the situation within the timeframe allowed by the authorities.

Khazanah might pare down its enlarged stake later to other potential investors as well.

The other substantial shareholder of the company is the EPF with a 6.89% stake.

It is believed that most of the negative news (including on the rights issue exercise) has already been reflected in its share price (early April 2013).

Market observers expect MAS to turn around in financial year 2013, as the airline continues to improve on reducing costs and improving revenue.

However, the risk to its recommendation included an increase in jet fuel prices which could hinder the group’s turnaround.

In February 2013, the number of passengers carried by MAS grew by a sharp 24% to 1.1 million passengers, driven by a 22% growth in international travel and 27% growth in domestic travel.

The load factor in February 2013 registered a commendable increase to 77% on the back of a 22% growth in revenue passenger km or RPK, which was ahead of the 10.2% contraction in capacity. Demand for cargo also improved in February 2013, registering a modest 14.7% growth, while load factor improved to 74.4%.

Despite the improving operating statistics, industry observer remains concerned on the current (April 2013) competitive operating environment among airlines, with three legacy airlines – Air France, Turkish Airlines and Philippines Airlines – returning to the KL International Airport, and potentially two more airlines in the next few months from April 2013.

Expect competition to be stiffer among legacy airlines, especially to international destinations.

Meanwhile the High Court of Malaya at Kuala Lumpur had granted an order confirming MAS' proposed capital restructuring. The corporate exercise involved reducing 90 sen of the par value of RM1 each, the proposed reduction of the share premium account and a renounceable rights issue of 10 sen to rasie uo to RM3.10bil after the proposed capital restructuring.

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