Rumors about AirAsia Berhad’s (KLSE: AIRASIA, stock-code 5099) privatization have been circulating many months ago and today the Southeast Asia’s largest discount carrier confirmed that its major shareholder Tune Air Berhad is considering the initiative to buy back the shares from the public in an attempt to take the company private. The magic word here is “considering” and based on the airline’s feedback to Bursa Malaysia it appears this option will only be viable if the public agreed to surrender their shares in exchange for RM1.35 per share *stingy rat*.

As much as Tony Fernandes and his partner, Kamarudin Meranun, would like investors to appreciate the listed company more than the current stock value, the fact remains that its aggressive expansion has somehow sent shivers into investors’ bones. It (the expansion) also came at a bad time when the global oil prices jumped from as low as $85 early Jan 2008 to as high as $147 a barrel mid July 2008. So you can’t blame investors for having cold feet over the stock as the black gold has direct impact on the cost of running the airline business. Tony has earlier hinted that his baby (AirAsia) will not be de-listed despite the poor stock performance but instead might float his long-haul budget airline, AirAsia X, via a reverse takeover or backdoor listing *could this happen now?*.

But now with the current global economy crisis, it would not be easy to gain investor’s interest in the stock although the initial plan was to get secondary listing either in U.S. or Europe. With the expected delivery of 17 units of A320s in 2008 and 23 units more in 2010 it seems the fastest way to secure financing is via privatization – assuming Tony has already got the ready-investors lined-up. As financial institutions are reluctant to lend in view of the current crisis in the banking system the speculators are betting that Employees Provident Fund (EPF) who has a 7.7 percent stake in AirAsia could be the major financier should the plan to privatize proceed. Furthermore EPF is a long-term investor unlike some foreign investors who dumped the shares for short-term gains inline with global stock market volatility.

Based on the strengthening of U.S. dollar against major currencies and the London inter-bank offered rate (LIBOR) of 4.5 percent for US dollar-denominated borrowings, it would be suicidal to seek borrowing in U.S. currency. Assuming Tune Air Sdn Bhd and EPF which own 30.7% and 7.7% respectively in AirAsia work hand-in-hand to get the plan works, it will need to dig about RM1.974 billion to buy back the remaining public shares. EPF is cash-rich so funding shouldn’t be a problem. A better plan is to allocate certain percentage to interested parties such as Middle-East financier and of course Tony buddy’s Virgin Group.

Global oil prices which have fallen to $90 a barrel should take away the pressure on AirAsia’s bottom-line and the current stock price seems juicy for private investors to take up stakes for sale. Heck, since most of the research houses are still reluctant to give a higher value on its stock AirAsia might as well take it off from the Kuala Lumpur Stock Exchange. Nevertheless the privatization plan could fail if the minority shareholders think the RM1.35 a share is too pathetic an offer to accept. OSK Research thought a 20 percent premium should be an attractive price but I want more. You should know by now how greedy I am, don’t you *grin*? By the way, it appears Dow Jones and Apple Inc. (Nasdaq: AAPL, stock) are still bleeding.

Other Articles That May Interest You …

• Airline Stocks – Can See but Cannot Touch, Not Yet
• Tony is cold sweating over Copy-Cat MAS’s free seats
• MAS to acquire AirAsia – Can’t Beat so Eat them Alive?
• Tony’s AirAsia, to Privatise or Not to Privatise

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October 7th, 2008 by financetwitter

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