Malaysia Airlines prices rights issue of up to $1 billion

The country’s national carrier, which is majority-owned by Khazanah, sets the issue price at a discount of about 34.3% to the Terp.
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A Malaysia Airlines A380, en route to Paris
<div style="text-align: left;"> A Malaysia Airlines A380, en route to Paris </div>

Malaysian Airline System (MAS), which is majority-owned by Khazanah Nasional, plans to raise up to M$3.07 billion ($1 billion) from a rights issue. It will use the proceeds for working capital, capital expenditure, such as new aircraft, and repaying debt.

The airline will offer up to 13.4 billion new shares of the company to existing shareholders at the offering ratio of four rights shares for every one existing share, it said in a statement on Thursday.

The issue price was fixed at M$0.23 per rights share, which represents a discount of about 34.3% to the theoretical ex-rights price (Terp) of M$0.35 based on the five-day volume weighted average market price of the shares up to Wednesday (April 10). The issue price also translates into a discount of 72% to Thursday’s close.

The stock will trade ex-rights on May 2, and the record date for the rights issue will be May 6, it says. The listing of the rights shares is expected on June 5. CIMB is advising the deal.

MAS’s stock fell 5.5% on Friday to M$0.78, while the FTSE Bursa Malaysia KLCI Index was down 0.5% that day. The airline’s stock has shed more than 20% since it announced the rights issue in late November, though it is up nearly 10% since the start of this year.

If only Khazanah subscribes for its full entitlement to the rights shares, it will result in the issuance of about 9.3 billion rights shares and will raise about M$2.1 billion, according to the statement. The state-owned Malaysian investment company currently has a 69.37% stake in the airline, according to Bloomberg data.

Khazanah’s full entitlement to the rights shares will represent the minimum subscription level for the proposed rights issue, and if the minimum subscription level is not achieved, the company will not proceed with the rights issue, the airline said in a filing in early February.

It also noted that it plans to use the proceeds for working capital, capital expenditure and repayment of borrowings. The capex involves the pre-delivery progressive payments for the next two years in relation to 17 units of B738 aircraft acquired from Boeing in 2008 and five units of A330 aircraft acquired from Airbus in 2010, it said.

MAS also said in February that it remains “cautiously optimistic of a challenging operating environment in the future”. It cited issues such as increased competition from low-cost carriers and rising fuel costs, though it says that growth in emerging markets will drive increased demand.

To maintain its relevance in a competitive market, the airline said it has embarked on a fleet renewal plan. Under the plan, the group will take delivery of new aircraft from 2010 until 2017, including 45 new Boeing 737-800 aircraft, 15 new Airbus A330-300s and six Airbus A380s, it noted. It also joined the Oneworld alliance in February this year, and its global coverage is expended to 840 destinations in 156 countries.

Elsewhere, the equity capital markets activity in Malaysia has been subdued in recent months, after the Southeast Asian country was home to multi-billion dollar initial public offerings last year, such as IHH Healthcare and Felda Global Ventures.

Though some large deals are also in the pipeline this year, sources have said that the market will likely remain rather quiet until the upcoming election is out of the way. The country’s general election is now set to be held on May 5.

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