AirAsia injects RM1b into Indonesia ops
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AirAsia Bhd has injected US$227mil or RM1.01bil into its associate PT Indonesia AirAsia (IAA) to address the latter’s negative equity position.
The low-cost carrier said its board had approved the subscription of the US$227mil or 3.042 trillion nominal value of perpetual capital securities issued by its 49% owned Indonesian operations.
AirAsia had on Friday entered into a perpetual security purchase agreement with IAA to formalise the issuance and terms and conditions between IAA and AirAsia for the subscription.
To recap, on Sept 29, 2015, AirAsia had subscribed to 2.058 trillion rupiah nominal value, which was 49% of the perpetual capital securities issued by IAA.
The move then was to comply with the directive received from the Directorate General of Civil Aviation (DGCA) of the Republic of Indonesia to resolve the negative equity position for financial year 2014.
On May 10, 2016, the Indonesian DGCA had again instructed IAA to increase its capital to address the negative equity balance.
Subsequently, IAA offered to issue 3.042 trillion rupiah of new perpetual capital securities to AirAsia.
“The subscription is to enable IAA to attain positive equity position as directed by the DGCA in compliance with the directive.
“To recap, on Sept 29, 2015, AirAsia had subscribed to 2.058 trillion rupiah nominal value, which was 49% of the perpetual capital securities issued by IAA.”
“Failure to address the capital shortfall carries the risk that the Minister of Transportation of the Republic of Indonesia would deny IAA’s requests for new route approvals or even impose a suspension of operations,” it explained.
AirAsia said the Subscription would help reduce IAA’s gearing without any need for AirAsia to inject further funding or capital to IAA as it entailed converting the amount owed to the company into equity of IAA.
“Indonesia is a crucial market for AirAsia. International Air Transport Association forecasted that Indonesia is expected to be the sixth largest market for air travel by 2034 with 270 million passengers.
“The risk of suspension of IAA would not only affect the AirAsia brand but also affect the network and future growth of AirAsia Group,” it said.
AirAsia said the perpetual capital securities carry an initial periodic distribution rate of 2% per annum for the first 12 months and subsequently 8% per annum on outstanding principal amount to the perpetual capital securities until the first call date.
It will then be stepped up to 13% per annum on outstanding principal amount of the perpetual capital securities post the first call date thereafter.
“Perpetual in tenure with no fixed maturity date, with IAA having a call option to redeem the perpetual capital securities at the first call date, which is at the end of the seventh year from date of issuance and on each subsequent periodic distribution date thereafter at their principal amount.
“The periodic distribution rate will step-up by 5% if the perpetual capital securities are not redeemed at the first call date,” it added.
Questions & Answers
Q.What is the primary reason for AirAsia's recent capital injection into PT Indonesia AirAsia?
What is the primary reason for AirAsia's recent capital injection into PT Indonesia AirAsia?
The main reason is to address PT Indonesia AirAsia's negative equity position, as directed by the Directorate General of Civil Aviation. This injection aims to ensure compliance with the directive and avoid potential operational suspension.
Q.What were the potential consequences if PT Indonesia AirAsia had not increased its capital?
What were the potential consequences if PT Indonesia AirAsia had not increased its capital?
Failure to address the capital shortfall carried the risk of the Minister of Transportation denying new route approvals for PT Indonesia AirAsia. There was also a risk of the Minister imposing a suspension of the airline's operations.
Q.How will this subscription affect AirAsia's need to provide further funding to PT Indonesia AirAsia?
How will this subscription affect AirAsia's need to provide further funding to PT Indonesia AirAsia?
The subscription is designed to reduce PT Indonesia AirAsia's gearing without AirAsia needing to inject further funding or capital. It involves converting an amount already owed to the company into equity in PT Indonesia AirAsia.
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