AirAsia X launches Malaysia IPO of up to $370 million

AirAsia X launches Malaysia IPO of up to $370 million
AirAsia X is responsible for all the long-haul international flights under the AirAsia brand

AirAsia X, a low-cost, long-haul airline that operates primarily in Asia-Pacific, started the bookbuilding yesterday for its Malaysian initial public offering, aiming to raise between $294 million and $370 million.

AirAsia X is controlled by AirAsia, the Malaysian low-cost carrier (LCC) founded by Tony Fernandes, and is responsible for all the long-haul international flights under the AirAsia brand.

After bankers started investor education last month, the management roadshow started on Friday (June 7). The institutional offering for the IPO kicked off yesterday, and is expected to continue until June 24, according to a term sheet. The retail offering, which also started yesterday, is expected to end on June 19, with the listing scheduled for July 10.

AirAsia X plans to use the proceeds to pay for the acquisition of engineering- and aircraft-related equipment, the expansion for the setting up of new hubs, the repayment of bank borrowings and general working capital, a source says.

While global stock markets turned extremely volatile in the last several weeks, partly due to worries that the US might scale back the stimulus programme earlier than expected, Malaysian stocks have proved to be resilient.

The FTSE Bursa Malaysia KLCI Index, which rose 0.7% yesterday, has gained 5.5% from a low in early May. That compares with Hong Kong’s Hang Seng Index, for instance, which shed 4.7% during the same period. The index was up 0.2% yesterday.

If successful, AirAsia X will be the biggest IPO in Malaysia so far this year, according to Dealogic. It is also the first deal of size for the Malaysian market since the general elections on May 5, when the ruling coalition won a thin majority to extend its decades-long rule of the country. Many observers have noted that the outcome of the election would be a key factor in deciding the direction of deal flow this year.

There have been five IPOs completed so far this year in Malaysia for a combined deal value of $335 million, with Cliq Energy’s $118 million offering in April being the biggest among them, the data show.

AirAsia X
The AirAsia X offering comprises 790.1 million shares, which represent 33.3% of the enlarged share capital, for a price between M$1.15 and M$1.45 each, set to raise up to $370 million, according to the term sheet. The deal consists of 75% primary shares and 25% secondary shares.

Some 68.1% of the shares are targeted at institutions, while the remaining 31.9% are offered to retail investors.

The deal comes with a greenshoe option of up to 15%, which will be all secondary shares, and if exercised in full could increase the size of the deal to as much as $426 million.

The price range values AirAsia X at a 2013 price-to-earnings ratio of between 18.7 times and 23.6 times, sources say.

One of its key comps is AirAsia, they say, which is trading at a 2013 P/E multiple of around 10.7 times, according to Bloomberg data. Investors will also likely compare it to other airlines such as Thailand-listed Asia Aviation, the holding company of budget airline Thai AirAsia, which is trading around 18.3 times and the Philippines-listed Cebu Air, which is trading around 14.5 times, the data show.

Some of the selling points of AirAsia X is that it is a well-known brand in the region, and it operates in one of the fastest growing markets in the world, according to one source.

The selling shareholders are Aero Ventures, Orix Airline and Manara Malaysia I. They currently own 74.0% of the company, but will see their combined stake reduced to 47.2% after the IPO, according to the company’s draft prospectus. Investment holding company Aero Ventures, which is controlled by AirAsia CEO Tony Fernandes and his partners, currently owns 52.2% of AirAsia X, while Orix Airline and Manara hold 10.9% each.

The airline currently serves 14 destinations across Asia, Australia and the Middle East from its hub in Kuala Lumpur. It operates a fleet of nine A330-300s for scheduled services, and has two A340-300s that are currently wet-leased, according to the draft prospectus. Under a wet lease, the airline leases its aircraft together with a complete crew, maintenance and insurance to another airline. The fleet represents the largest LCC wide-body aircraft seat capacity in the Asia-Pacific region, it says.

The airline says it believes it operates in an underpenetrated home market relative to other major Asian airports in terms of long-haul flights, which provides additional growth opportunities for it to serve some of the world’s largest and fastest-growing aviation markets.

Its passenger volume increased at a compound annual growth rate of 76.8% from 2008 to 2012, and its revenue grew to M$2 billion ($632 million) last year from M$230.7 million in 2008.

CIMB, Credit Suisse, and Maybank are joint global coordinators for the IPO, and Barclays, BNP Paribas, Citi, CLSA, HSBC, and Morgan Stanley join them as bookrunners, according to the sources. At the time of the start of investor education last month, some sources involved in the deal said Morgan Stanley had been added to the global coordinator line-up, but the situation was fluid and that did not turn out to be the case in the end, according to one source yesterday.

The AirAsia X public offering follows the popular IPO of Asia Aviation in May last year, which raised $143 million. AirAsia has also expressed an intention to list its associate Indonesian business. The idea behind the separate listings is to enable its various units to accumulate capital and debt so that they can buy their own aircraft in the future, thus easing the financing burden and leverage at the group level.


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