Bonanza returns for AirAsia co-founders

This article first appeared in The Edge Financial Daily, on March 2, 2018.
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KUALA LUMPUR: You may call them the kings of deals. In barely 13 months, the returns of the additional 16.73% stake that AirAsia Bhd’s co-founders Tan Sri Tony Fernandes and Datuk Kamarudin Meranun had invested in have more than doubled at least.

Through Tune Live Sdn Bhd, the duo took up some 559 million shares at RM1.80 per share or RM1.01 billion in total. Thanks to a strong rally in AirAsia’s share price, the shares are now worth RM2.58 billion based on yesterday’s closing of RM4.60. The aviation stock has gained 85.5% in the past 12 months.

Investors following the insiders’ move at that time to snap up AirAsia shares should be grinning too. Capital gain aside, the greater news is that bumper dividends are in the pipeline.

At the official launch of AirAsia’s headquarters RedQ yesterday, Fernandes, also the airline’s group chief executive officer, told the media that AirAsia shareholders could expect continued flow of special dividends simply because the low-cost carrier will divest more non-core assets to unlock values.

“The special dividends will always continue because we have many [non-core] assets that can [be] monetised,” said Fernandes, adding that these assets include a 25% stake in online travel agency AAE Travel Pte Ltd, a joint venture with Expedia Southeast Asia Pte Ltd, logistics, cargo and food businesses.

Yesterday, AirAsia announced the sale of its aircraft leasing businesses from Asia Aviation Capital Ltd (AACL) for US$1.18 billion (RM4.62 billion). Upon completion of the deal, AirAsia is expected to receive RM3.52 billion in cash, of which 22.4% or RM788.1 million is slated for prepayment of bank loans and 3.2% or RM112 million for expenses on the divestment. The utilisation of the remaining proceeds will be determined later.

Prior to this, AirAsia also sold a 50% shareholding in Asian Aviation Centre of Excellence for US$100 million (RM429.3 million), and a 38.6% stake in its airport service arm Ground Team Red Holdings Sdn Bhd for S$119.3 million (RM372.2 million) last year.

On the back of envelope calculation, the low-cost carrier is getting some RM4.32 billion in cash from all the divestments. Excluding the sum for debt repayment, AirAsia has a sizeable cash pile for dividend payment.

Fernandes and Kamarudin are deemed to have interest in AirAsia through Tune Live and Tune Air Sdn Bhd. Tune Live, equally owned by the duo, holds a 16.73% stake in AirAsia, while Tune Air owns a 15.45% stake. Fernandes controls 48.33% equity interest in Tune Air, while Kamarudin 40.23%, and Abdel Aziz @ Abdul Aziz Abu Bakar holds the remaining 10.94% stake. Tune Live and Tune Air are the largest shareholders of AirAsia.

In addition, Fernandes holds a 0.05% direct stake and Kamarudin 0.06%. Assuming AirAsia distributes the remaining proceeds of RM2.62 billion, equivalent to 78 sen per share, Fernandes is expected to receive a dividend of RM415.41 million with his direct and indirect stakes. Kamarudin will get a dividend of RM382.93 million.

Pacific Mutual Fund Sdn Bhd chief executive officer Teh Chi-Cheun said AirAsia’s special dividends could amount to at least 45 sen per share after taking into account all the divestments made in the past 12 months. “This could continue to support the share price in the short term. However, valuations are on the high side and the industry is competitive. In addition, rising fuel costs remain a potential dampener to earnings,” he said.