Amid criticism of high debt levels and excessive ambition, Malaysia Airlines has announced the biggest capital restructuring in its history, aimed at raising US$2.2 billion for new aircraft purchases and investment at Kuala Lumpur's new airport.
MAS chairman Tan Sri Tajudin Ramli, says a one-for-one bonus share issue, at US$0.93 a share, will raise US$730 million. About 231 million shares are to be offered to 20,000 staff. There will also be an issue of 1.5 billion unsecured bonds, to mature in 2002, with 770 million warrants to be taken up by Bumiputra Merchant Bankers. The bond offer price will be determined nearer the implementation date.
Ramli says that US$1.3 billion of the new capital will help finance the airline's US$4 billion order for 25 new Boeing jets. The remainder will be invested at Kuala Lumpur/Sepang, mainly to build catering, cargo and engineering centres.
The recapitalisation should also boost future profitability with the additional equity used to cut finance charges. Ramli also plans to switch to sourcing funds through fixed rate financings rather than floating rate borrowing. 'While we will still have loans in our books, it will tremendously improve the debt-equity position of the airline. Our debt equity ratio is now at 1:9 and is expected to reduce to 1:4 next year. Given time, it will continue to be reduced,' Ramli adds. The carrier will also fund the purchase of the 15 B777s and 10 B747s on order through the sale of older aircraft.
Analysts welcomed the announcement, describing the share issue price as 'a good deal for investors'. They predict a positive response but warned the airline would have to back up the restructuring with improved performance and strong cash flow.
On top of concern over the carrier's balance sheet and expansion plans, MAS has also come under criticism recently for poor service standards. Ramli is hoping that a management reorganisation, new aircraft and the move to Sepang, which opens in 1998, will lift both MAS' image and financial performance.
He makes no secret of his goal to turn MAS into a major global operator and has one of the most ambitious growth plans among Asian airlines in terms of fleet and network expansion.
MAS treasury manager Low Chee Teng says the airline's current monthly cash flow is 'very strong' and that management is striving to lower operating expenses by cost-cutting.
Ramli controls MAS through Malaysian Helicopter Services (MHS), which has a 30 per cent holding in the airline. But he refuses to say whether MHS would take up its rights to the new shares and maintain its stake at the current level. 'I suspect it will, but at this point I cannot speak on behalf of MHS. They are just one shareholder,' he says.
Source: Airline Business
