AirAsia's Thai unit mandates banks for 2011 IPO

Thai AirAsia says it plans to raise at least $150 million from a listing in Bangkok and hires CIMB, Credit Suisse and Thanachart Securities to make it happen.

Thai AirAsia has made its first public move towards an initial public offering by appointing three banks to help it achieve a goal of raising at least $150 million.

In a statement issued yesterday, the Bangkok-based low-cost airline, which is a joint venture between Malaysia’s AirAsia and the company’s management, said CIMB, Credit Suisse and Thanachart Securities will act as joint lead underwriters on the IPO.

The plans have been well publicised as AirAsia has repeatedly stated its intention to seek separate listings for its associate businesses in Thailand and Indonesia, although yesterday’s announcement firmed up the timetable by saying that Thai AirAsia’s shares are expected to be listed on the Stock Exchange of Thailand before the end of this year.

The idea is to allow the two units to accumulate capital and debt so that they can acquire their own aircraft in the future, thus easing the financing burden and leverage at the group level. AirAsia might also list its long-haul operations, known as AirAsia X, in 2012, according to a presentation to analysts in connection with its fourth-quarter results last month.

“The proceeds of this IPO will be used to further strengthen the company’s capital structure to a level appropriate to support our future operations, including the acquisition of additional aircraft,” said Tassapon Bijleveld, CEO of Thai AirAsia. “Following the strong performance in 2010, we are confident that this is the right time to access the capital markets for further expansion.”

Tassapon added that Thai AirAsia, which operates low-cost domestic and international flights to and from Bangkok’s new Suvarnabhumi International Airport, will take delivery of more new A320 aircraft this year to add to its current fleet of 20 aircraft. “We aim to grow to at least 40 aircraft in the medium term,” the statement quoted him as saying.

Thai AirAsia posted a 33% increase in revenues to Bt12.4 billion ($400 million) in 2010, while net profit soared 452% to Bt2.85 billion. Based on today’s exchange rates, the Thai business accounted for approximately 22% of AirAsia’s total revenues and 18% of its net profit. It carried a total of 5.8 million passengers, which was up 16% from 2009 and made it the largest low-cost carrier in Thailand. The load factor, which measures how much of an airline’s available seat capacity is actually used, was 78%.

And Thai AirAsia is confident that the demand for its low-cost services will continue to grow. For one, it expects the number of passengers to increase by about 20% to 7 million this year. Tessapon also told reporters in Bangkok yesterday that revenues are expected to grow at an average of 35% to 40% a year during the next five years.

Meanwhile, the statement quoted him as saying that the airline is seeing strong demand for its flights to India, which it launched in 2010, and that the Thai economy is expected to remain buoyant throughout this year. “There is further room for the market to expand as there is strong demand for travel in the Asia-Pacific region, hence it is the right time to proceed with an IPO,” he said.

Whether investors agree is another matter. The $520 million IPO of Indonesia’s flagship airline, Garuda Indonesia, in January this year attracted modest interest from international investors and, two months after its debut, the stock is trading 30% below the IPO price.

Garuda has plenty of growth potential thanks to a strong and relatively resilient domestic economy, and is expected to benefit from the impending consolidation of Indonesia’s fragmented airline industry, but it came with excess baggage in the form of a five-year debt restructuring exercise that was completed only in December last year. Most foreign investors also considered the offering price too expensive.

International investors tend to like low-cost airlines as they are seen as direct plays on domestic consumer spending and the increase in disposable income. The industry’s growth prospects are huge, as a greater proportion of Asia’s population can afford to fly instead of taking buses or ferries.

Indeed, the IPOs of Singapore-based Tiger Airways and Philippine-based Cebu Air last year both attracted a lot of interest. However, the share price performance of both stocks suggests that some of that enthusiasm has worn off as economists warn that economic growth in the region might be curtailed by efforts to stave off inflation. The recent spike in oil prices is also pushing up fuel costs.

Cebu Air has been on a declining trend pretty much since it listed in October and is currently trading 31% below its IPO price. Tiger Airways, which listed in January 2010, performed well for most of last year and in August traded as much as 50% above its IPO price. However, the stock has taken a tumble in the past couple of weeks after the airline suspended some of its Australian flights due to a lack of demand and Ryanasia, a company controlled by the family behind Ryanair and one of Tiger Airways’ four founding shareholders, reduced its stake in the airline. Yesterday it closed 6.7% below the IPO price at S$1.40.

AirAsia, on the other hand, has stayed on a steady upward trajectory since late May last year. Yesterday’s close of M$2.48 put the gain since then at 123%.

Aside from its own optimistic growth projections, Thai AirAsia may gain some traction with investors due to the scarcity of sizeable IPOs in Thailand. Last year, five companies raised a combined $322 million from new listings on the country’s main exchange, according to Dealogic data, and while that may seem small, it was up from $206 million in 2009. The largest IPO last year was the $142 million offering by Indorama Ventures, a producer of PET plastic used primarily to make drinks bottles, and the largest IPO in the past six years was Rayong Refinery’s $719 million offering in 2006. In that same six-year period, only four companies have raised more than $200 million from a Thai listing.

Thai AirAsia was set up in 2004 as a joint venture between AirAsia and Shin Corporation, a Thai telecom and media company then owned by the family of former prime minister Thaksin Shinawatra. As per Thai regulations, Shin Corp owned 51% and AirAsia 49%. Following the controversial sale of Shin Corp to Temasek in 2006, the controlling stake was initially transferred to a domestic company in which Shin Corp held 49% but which was controlled by a Thai individual. But in 2007 the Thai AirAsia management took control of 50% of the airline. AirAsia continues to own 49% and CEO Tassapon has a 1% stake.

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