AirAsia X (AAX) announced that it is now classified as a Practice Note 17 (PN17) company after its external auditor Messrs Ernst & Young PLT (EY) expressed a disclaimer of opinion on its audited financial statement for the 18-month financial period ended 30 June 2021 (FPE21). AAX has 12 months to regularise its financial condition, failing which it will be delisted from Bursa Malaysia. AAX is currently undertaking a proposed debt and corporate restructuring as well as looking to raise new equity funding to restart its operations when international borders reopen. The scheme creditors’ meetings in respect of the proposed debt restructuring are to be held on 12 Nov 2021. At least 75% of each class of scheme creditors in the meeting are required to vote favourably for the proposed debt restructuring exercise prior to the implementation of the proposed corporate restructuring and fundraising. Pending completion of its restructuring exercise, we retain our Underperform call on AAX with target price of 1sen.

• AAX triggered PN17 criteria. AAX triggered the criteria in the PN17 after its external auditor EY expressed a disclaimer of opinion on its audited FPE21. AAX has 12 months to regularise its financial condition, failing which it will be delisted from Bursa Malaysia.
  
  To recap, this is not the first time AAX triggered the PN17 criteria. AAX had on 30 July 2020 triggered PN17 criteria after its shareholders’ equity on a consolidated basis fell to less than 25% of its share capital and EY had also issued an unmodified audit opinion of its ability to continue as a going concern in respect of AAX’s audited financial statement for its FYE 31 Dec 2019. However, AAX was not classified as a PN17 company back then due to relief measures provided by Bursa Securities on listed issuers that have triggered the criteria for the classification from 17 Apr 2020 to 30 June 2021.
   
• Outlook. AAX continues to face severe liquidity constraints and all hopes are on successful debt restructuring and new equity funding from existing and new investors to provide sufficient capital to restart operations when international borders reopen. While shareholders have approved all the proposals at the EGM on 1 Jun 2021, the implementation of the fund raising exercise can only be implemented upon successful completion of the proposed debt restructuring exercise. The court convened meetings for the scheme creditors in respect of the proposed debt restructuring are to be held on 12 Nov 2021. It would require at least 75% of each class of scheme creditors in the meeting to vote favorably for the proposed debt restructuring exercise to carry

Source: PublicInvest Research - 1 Nov 2021