Thursday June 10, 2010

Shareholders will need to be consulted first

AirAsia X Sdn Bhd (AAX) is considering the possibility of listing on the Hong Kong or New York stock exchange, which are options being proposed by a couple of foreign investment banks pitching to secure the mandate for the long haul budget carrier’s initial public offering (IPO).

Even so, no decision has been made on the listing venue of the IPO, which is being targeted for the second half of next year. “All the shareholders will need to be consulted on this issue, which has yet to be raised at board level. But the current foreign shareholders in AAX may be more inclined towards an overseas listing,” said a source close to the exercise.

AirAsia X, which began its operations in November 2007, is 48% owned by parent company Aero Ventures Sdn Bhd (owned by Datuk Seri Tony Fernandes, Datuk Kamarudin Meranun, Datuk Seri Kalimullah Hassan, Lim Kian Onn and former Air Canada chairman and CEO Robert Milton) while Richard Branson’s Virgin Group and AirAsia Bhd each has a 16% stake in the carrier.

Japan’s Orix Group and Bahrain-based Manara Consortium each owns 10% in AAX.

The IPO, said a source, is likely to value AAX at between US$500mil and US$600mil.

It is believed that several foreign investment banks, namely Goldman Sachs, Credit Suisse and Royal Bank of Scotland have been lobbying to get the IPO mandate, but none – local nor foreign advisers – has been appointed yet.

The front runners, however, are said to be Goldman Sachs and Credit Suisse. One of the foreign investment banks, it is believed, had submitted a “constructive proposal” on a potential listing on a foreign exchange.

“Several reasons support their recommendation for AAX to list abroad. One of them is that the company can fetch better valuation. It may be easier to raise money in these markets (Hong Kong or US) via a rights issue or other ways as they understand the business better. In Malaysia, there seems to be some psychological hang-up among certain government-linked funds that they ought to support the national carrier Malaysia Airlines instead. So, getting the institutional support in Malaysia is relatively more difficult,” he said.

However, the source said the company would still be majority controlled by Malaysians and was currently in talks with a key government-linked fund to take up a strategic stake at a “low valuation” in a pre-IPO exercise.

That AAX’s major shareholders could find it relatively easier to “sell” the LCC story to foreign investors can be gleaned from the foreign shareholding level of listed AirAsia Bhd. As at Feb 5 this year, it had a high foreign shareholding of some 49.8%.

In fact, in December last year, it stood at just over 50%, which exceeded the 45% limit of foreign ownership of its shares as per the company’s Articles of Association.

While shares held by foreigners within the prescribed limit are entitled to all rights and entitlements, those held by foreigners which have exceeded the limit are also similarly entitled except that they do not include voting rights.

Furthermore, based on Bloomberg data, of the top 20 shareholders based on size of holdings (apart from Tune Air which is the single largest shareholder), the EPF is the only government-linked fund whose name appears on the list with a stake of 7.16% as at May 27.

This article is a verbatim copy of the original article from The Star.