KUALA LUMPUR (Oct 1): AirAsia Bhd has subscribed to 49% of the IDR4.2 trillion perpetual capital securities issued by its 49%-owned associate PT Indonesia AirAsia (IAA) for IDR2.06 trillion.
In a filing with Bursa Malaysia today, AirAsia said it had on Sept 29 entered into a perpetual security purchase agreement with IAA to formalise the issuance and the terms and conditions between IAA and AirAsia with respect to the subscription.
The exercise involves AirAsia converting part of the existing amount due from IAA of IDR2.06 trillion as of June 30, 2015 into the subscription of the latter's perpetual capital securities.
The total amount due from IAA as of June 30, 2015 was IDR4.28 trillion.
The terms and conditions of the perpetual capital securities include carrying an initial periodic distribution rate of 12% per year, which is payable semi-annually. This periodic distribution rate will step up by 5% if the perpetual capital securities are not redeemed at the first call date.
However, AirAsia warned that the ability of IAA to pay interest will be dependent on several factors, such as its operating results, cash flow position, capital commitments, working capital requirements as well as covenants in its existing/future loan agreements.
AirAsia also said the subscription is to enable IAA to raise funds to attain positive equity position as directed by the Directorate General of Civil Aviation of Indonesia (DGCA) in compliance with Law No.1/2009 on aviation.
Based on the audited financial statements of IAA for the financial year ended Dec 31, 2014 (FY14), the negative equity of IAA stood at IDR3.18 trillion.
"As the DGCA requires IAA to address its negative equity position by Sept 30, 2015, there is a risk that the Minister of Transportation of Indonesia would deny IAA's requests for new route approvals or even impose a suspension of operations. This may result in the airline having to cease operations, which would have a negative impact on public perception of the AirAsia brand and a material adverse effect on our group business," said AirAsia.
The airline pointed to the International Air Transport Association's forecast that by 2034, Indonesia is expected to be the sixth largest market for air travel. By then, some 270 million passengers are expected to fly to, from and within the country which is three times the size of today's market.
"In view of the future growth of Indonesia and in line with our growth strategies in the region, IAA would help to maximise route opportunities for the group in Indonesia," said AirAsia, adding that IAA currently operates 23 Airbus A320s in the republic.
"The subscription will also help to reduce IAA's gearing without any need for AirAsia to inject further funding or capital into IAA as it entails a conversion of the amount owed to the company into equity interest in IAA," it added.
However, the subscription will reduce AirAsia's pre-tax profit for FY15 by approximately RM474.2 million as at June 30, 2015, as a result of the recognition of prior year losses of IAA.
It will also reduce the airline's shareholders' funds to RM4.08 billion from RM4.56 billion, while gearing ratio will rise to 3.12 times from 2.79 times after the subscription.
"The subscription is expected to contribute positively to the future consolidated earnings and earnings per share of AirAsia when the benefits arising from the subscription are realised and recognised by AirAsia through equity accounting," it said.
PT Fersindo Nusaperkasa holds the remaining 51% equity interest in IAA.
AirAsia shares closed down 2 sen, or 1.56%, to RM1.26 today, bringing a market capitalisation of RM3.51 billion.
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