Malaysia Airlines (MAS) has unveiled bold plans to triple its share base and raise nearly M$3.3 billion ($1.3 billion) to help underwrite a widebody fleet re-equipment programme and the company's move to Kuala Lumpur's new international airport at Sepang.
The funding will be split between a M$1.8 billion rights issue of new shares to existing stockholders, and a $M1.5 billion sale of preference stock and bonds which are due to mature in 2002. The issues are due for completion in November, helping to make a substantial improvement in the group's debt-to-equity ratio, says chairman Tajudin Ramli.
MAS' plan has received a cautious welcome from the financial market, as it avoids expensive bank borrowing but, due to the bond element, does not rely entirely on issuing fresh shares. "This was the best of all the scenarios that were envisaged," comments Goldman Sachs analyst Jean Louis Morisot.
Of the funds raised, about M$1 billion will be used for construction of new engineering, catering and cargo bases for MAS at Sepang. The balance of the new funds, together with proceeds of asset sales, will go towards underwriting the airline's M$10 billion order for ten Boeing 747-400s and 15 777-200/300s, the first of which will be delivered in mid-April.
To help attract new investment, the Malaysian airline has been pressing the Government to raise the ceiling on foreign ownership of the airline from the existing 33% to near to 49%.
Tajudin's own company, Malaysia Helicopter Services, through which he owns 29%of MAS, is also likely to subscribe to the new issue. Tajudin is understood to want to raise his interest in the airline to 51%.
Analysts suggest that investors will be attracted by the combination of a cheap share price and improved long-term prospects as the result of Malaysia's open-skies agreement with the USA. "The MAS story is fairly appealing -open skies will lead to them drawing back a lot of traffic that has been haemorrhaging to Singapore," says one analyst.
Source: Flight International
