Published October 7, 2008

Moves underway to take AirAsia private

Privatisation will be a blow to KL bourse which has seen other good stocks delisted

By S JAYASANKARAN
IN KUALA LUMPUR
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THE major shareholders of AirAsia, South-east Asia's largest budget carrier, are mulling over taking the company private, a development that could be announced as early as this week.

Share price factor: Privatising AirAsia began to be seriously considered after its shares started dropping below RM1 three months ago, say executives

The speed of the exercise may have been catalysed by a speculative story over the decision in the Edge newspaper over the weekend.

Indeed, executives familiar with the exercise said that the situation was fluid: The rapidly increasing share price of the company could render the financing of the deal unviable.

'I suspect that if it rises beyond RM1.40 to RM1.50, then it could be no go,' one of the executives told BT. AirAsia shares closed slightly up at RM1.25 yesterday, but massively above its lows of below RM0.80 two months ago.

The executives said that privatising the airline began to be seriously considered after AirAsia shares began dropping below RM1 three months ago, in part because of massive sell-offs by international fund managers such as T Rowe Price, spooked by the increasing prices of crude oil amid intensifying competition in the airline industry.

But news of the exercise began to leak out after supporting documents were lodged with Bursa Malaysia and the Securities Commission on Sept 29.

In fairness, however, the airline's shares started rebounding after oil prices began going off their highs in September.

The exercise reflects the frustration of the airline's major shareholders who consider their business completely undervalued by investors more interested in short-term horizons than long-term viabilities.

If AirAsia's privatisation goes through, however, it will also represent another blow to the Kuala Lumpur stock exchange which has increasingly seen quality stocks such as Maxis Telecommunications and PPB Oil Palms delisted from the exchange over similar frustrations by their major shareholders.

AirAsia's 31 per cent major shareholder is Tune Air, which is majority-controlled by its founder-entrepreneur Tony Fernandes.

Another 15 per cent or so is held by the Employees Provident Fund, Malaysia's largest private pension plan, and Nomad, a hedge fund that operates out of the Caymans and which began buying the stock when it fell under RM1 earlier this year.

At RM1.50 a share, the airline is valued at around RM3.6 billion (S$1.51 billion) which, according to the executives, should be fundable.

'There is no doubt it's undervalued,' said one of the executives. 'Its option to purchase 125 new aircraft between now and 2012 at a huge bulk discount alone is a huge asset at a time of increasing aeroplane cost. And don't forget that oil prices are drifting downwards.'

In response to questions from AFP, a spokesman for AirAsia told the agency that the airline was 'considering various options'.