KUALA LUMPUR (Oct 27): AirAsia X Bhd’s (AAX) share price traded at its lowest level in almost two years on Thursday (Oct 27) after the expiry of the extended time given to the Practice Note 17 (PN 17) company to complete the implementation of corporate exercises announced in May last year.

The stock closed the day 1.25% or 0.5 sen lower at 39.5 sen.

The corporate exercises comprised a one-for-one-rights issue to raise up to RM116 million and a special issue to raise RM50 million from the proposed share subscription by a special purpose vehicle called Garynma Investment Pte Ltd.

“The extension of time granted by Bursa Securities to complete the implementation of the remaining corporate exercises has lapsed today, AAX said in a bourse filing on Wednesday. Accordingly, the remaining corporate exercises will not be implemented.”

The medium haul, low-cost affiliate of Capital A Bhd said it was in the midst of formulating a comprehensive proposed plan to regularise its Practice Note 17 (PN17) condition.

An analyst from a local research firm told The Edge that the expiry of the extended time to implement the corporate exercises should be favourable for AAX as the airline is currently striving to be in a better shape on the back of a recovery in air travel demand, and is set to be in a better position to convince investors.

The reopening of international borders has certainly helped to ease AAX’s cash flow pressure, the analyst noted.

Headwinds persist despite rise in air travel

However, he said recovery for AAX in terms of its operation has some way to go as one of its key markets, China, is still under Covid-19 lockdown with no end in sight, while Japan only reopened its borders for tourists in mid-October after more than two years of isolation.

“Overall, the airline travel’s recovery pace in Asia Pacific is still lagging behind other regions such as the US and Europe. Hence, it is important for AAX to raise funds as soon as possible in order to provide some buffer to cushion some of these headwinds, and allows the company to ramp up its operations [to quickly capitalise on any increase in air travel demand in the future],” the analyst said.

He said a rights issue is still the best possible way for AAX to raise funds, considering that its share price may recover along with the improvement in its operations amid the recovery in air travel. This will help the group to raise the amount of funds it seeks while witnessing a smaller share dilution.

Aviation consultancy Endau Analytics founder and analyst Shukor Yusof said AAX’s management may have a Plan B to access funds from non-traditional sources.

Asked if there was an urgent need for the airline to look for funds, he said it does not appear to be so “from the looks of it”.

“It could be that the management is on top of things,” Shukor told The Edge.

He added: "Cost of borrowing has gone up a lot. AAX will need to show lenders or potential investors it has got a sound strategy."

Prior to this, when announcing its quarterly financial results on Aug 19, AAX said it was still in the midst of securing the underwriters for the one-for-one rights issue and that Garynma Investment had yet to sign the share subscription agreement of RM50 million.

The rights issue price was fixed at 28 sen and it was expected to raise proceeds of RM116 million. Together with the RM50 million from the proposed share subscription from Garynma Investment, the total amount of RM166 million was earmarked for funding AAX’s working capital requirements.

In addition, Garynma Investment was to be given the option to subscribe to an additional 15% of the enlarged total number of AAX shares after the fundraising exercises.

AAX needs to fix negative shareholder equity

Another analyst, speaking on condition of anonymity, said the imminent issue AAX should address is its negative shareholders' equity.

AAX shareholders’ equity stood at a negative figure of RM778.14 million as at June 30 compared with a negative figure of RM33.58 billion a year earlier.

“There are two ways to address this issue. One is to generate enough profit to fill the gap of negative shareholders’ equity, and the other way is to raise funds via equity financing such as private placement to its major shareholders,” he said.

The analyst reckoned that long-haul travel will take longer to recover compared with domestic travel or short-haul travel to neighbouring countries, as the confidence level for long-haul travel may take more time to fully recover to pre-Covid-19 levels.

Rising inflation, which partly drives airfares to increase, could halt a rebound in air travel, he added.

Given these challenges, he said raising funds from its major shareholders is more viable to address the negative shareholders' equity issue.

AAX slipped into PN17 status in October 2021 after its external auditor Ernst & Young PLT expressed a disclaimer of opinion in its audited financial statements for the 18-month financial period ended June 30, 2021.