AirAsia Group (AAGB) has received approval from Danajamin Nasional Bhd (Danajamin) for an 80% guaranteed loan of up to RM500m. This gives the Group some breathing space and leeway in ramping up its operations when interstate and international borders re-open in the near future. To note, Malaysia is looking at allowing interstate domestic travel and international travel when 90% of its adult population is fully vaccinated. The rate stands at 88% as of 4 Oct 2021 according to the Ministry of Health. The RM500m club facility together with other funding and monetisation exercises will have raised RM2.1bn, within AAGB’s guidance of RM2.0bn to 2.5bn range in new capital. We make no changes to our forecast and maintain our Neutral call on AAGB with unchanged target price of RM0.86 for now. The Group’s share price has moved up recently on optimism surrounding resumption of travel.

• Danajamin Scheme. AAGB has received approval under the Danajamin Prihatin Guarantee Scheme, part of the country’s Economic Stimulus Package following the unprecedented COVID-19 outbreak. The loan has been approved by the Group’s lenders under a club deal term financing scheme, with guarantees provided via Syarikat Jaminan Pembiayaan Perniagaan (SJPP), a wholly-owned entity of the Ministry of Finance.

• Utilisation of proceeds. The financing is earmarked for working capital purposes, which will support staff costs and key operating expenses such as aircraft maintenance and fuel costs.

• Our view. Approval from the Malaysian government is a welcome boost to the Group’s overall fundraising strategy to address its cash flow requirements. Along with the Group’s renounceable rights issue of up to RM1bn, expected to be completed in Dec 21, the Group will have sufficient liquidity and working capital to ramp up its operations when interstate and international borders re-open in the near future. Nonetheless, we understand the Group continues to explore other available funding options and/or corporate exercises to ensure sufficient liquidity and further strengthen its capital structure.

Source: PublicInvest Research - 6 Oct 2021