MAS may make cash call

(Business Times) – Malaysian Airline System Bhd (MAS) might ask its shareholders to pump in more money into the company via a cash call exercise, analysts speculated yesterday.

Among the national carrier’s biggest shareholders are the government-linked Khazanah Nasional Bhd and the Employees Provident Fund.

Collectively, the two control about 58 per cent of the company, with Khazanah owning the lion’s share of the airline.

The second largest stakeholder in the lossmaking carrier is the privately-held Tune Air Sdn Bhd with a 20.5 per cent stake.

The core owners of Tune Air are also the main drivers of AirAsia Bhd, Asia’s top budget carrier.

OSK Research and Hong Leong Investment Bank (HLIB) Research speculated there is a high possibility of MAS calling for cash call exercise due to the urgent cash it needs to fund the operating losses, potentially high restructuring cost and
new deliveries of aircraft.

“It (the cash call) depends if the existing shareholders will subscribe to it,” said the analyst.

Meanwhile, analysts said the airline does not need the government’s assistance to raise funds and strengthen its balance sheet.

“That wouldn’t be right. They should do it on their own,” an analyst said.

MAS yesterday said it hopes to finalise and announce a plan to raise funds and strengthen its balance sheet within the next 60 days.

Companies can raise cash from its existing shareholders via a rights issue exercise or it could even ask its shareholders to advance them cash.

Alternatively, a company can also place out its shares to a third party to raise money with proceeds from the placement going directly to the company.

Cash calls normally dilute the earnings per share of a company, hence it came as no surprise there were “sell” calls on MAS.

OSK, HLIB and MIDF Research maintained their “sell” recommendation on MAS. MAS shares fell five sen to close the trading day at RM1.38 a share, with some analysts saying that the share could drop to as low as 90 sen.

On Wednesday, MAS said it suffered a fourth quarter net loss of RM1.28 billion against a net loss of RM225.9 million in the same period a year ago The worse-than-expected losses were mainly driven by high fuel cost and additional provisions like redelivery of aircraft, impairment of freighters and stock obsolescence.

The loss triggered the question whether AirAsia will pull out its shares in MAS in the near future.

Analyst said it is highly unlikely since both companies are committed to work with each other.

“I don’t think there will be any reasonable basis where the share swap can be terminated or cancelled,” the analyst said.

Business Times reported yesterday that MAS remains confident that the worst is over and is looking at a breakeven this year despite the shocking loss.

However, analysts remained sceptical, saying that the outlook on MAS is still bleak and it is very unlikely that it will achieve a breakeven this year.

They claimed that there are still some concerns on fuel prices and MAS’ aircraft deliveries. Therefore it is still too early for MAS to look at breaking even.

“It depends on how fast they (MAS) can turn around and they have to do something … They have not done something meaningful since their turnaround announcement,” said an analyst.