Delisting MAS A Wiser Option

REBUILDING EFFORT: Analysts tell Khazanah that it is better than bankrolling RM3.1 billion cash call

KHAZANAH Nasional Bhd should take Malaysia Airline System Bhd (MAS) private instead of opting to help bankroll a RM3.1 billion cash call, analysts say.

News that the national carrier plans a rights issue, its second in as many years, saw investors selling the stock yesterday.

In 2009, MAS did a one-for-one rights issue of 1.67 billion shares at RM1.60 each to help fund its acquisition of wide-body aircraft, as well as for working capital (including pre-delivery payments for new aircraft ordered) and repayment of bank borrowings.

Investors shunned the latest rights issue plan by selling MAS shares in droves. The stock slumped 17 sen to close at 84 sen on Bursa Malaysia yesterday. It had hit an intraday low of 80 sen a share as sellers swamped buyers.

As a result of the selling pressure, MAS' market capitalisation slumped by as much as RM600 million to close the trading day at RM2.8 billion. A day earlier, the airline had a market capitalisation of RM3.4 billion.

RHB Capital Bhd said in a research note that the corporate exercise is a step in the right direction for MAS but the market is not in the mood for a massive cash call.

"We remain cautious on MAS given the extent of its structural and operational problems that are not adequately addressed ... with a turnaround plan that we find shallow," the research firm said.

Script exercises such as a rights issue are normally seen as a negative signal to the stock market as it involves shareholders forking out more money to subscribe for the issue.

Shareholders who do not participate in the cash call will see their holding diluted, hence there is a tendency for early cash out of shares by those who do not intend to participate.

An analyst from Maybank Investment Bank Bhd opines that the vendors of MAS should opt to take the airline private, restructure the balance sheet, and then list some of its subsidiaries with potential such as Firefly Sdn Bhd and MASkargo Sdn Bhd.

"I think that is a fantastic idea if Khazanah were to privatise MAS... They should have done this years ago. But somehow they are looking at all the options except privatisation," he told Business Times.

The call for MAS to be taken private does hold water as at current prices, it will only cost Khazanah some RM2.8 billion to delist MAS against RM3.1 billion it will have to fork out if no other shareholder were to subscribe for the rights issue.

Analysts argue that MAS could raise as much as RM1.5 billion if it were to list Firefly, considering that its turboprop operation generates a profit of more than RM100 million on a yearly basis.

On Tuesday, MAS announced that it plans to undertake a RM3.1 billion cash call and a RM8 billion capital reduction exercise to help clean its balance sheet and wipe off its accumulated losses.

Major shareholder Khazanah has given MAS its irrevocable and unconditional undertaking to subscribe for its full entitlement under the proposed rights issue.

MAS has said that proceeds from the proposed rights issue are to finance capital expenditure and working capital requirements and to reduce borrowings.

- BTimes