Accept offer, Alliance tells MAS minority shareholders

by **Cals** Mon 11 Aug 2014, 22:55

Business & Markets 2014

Written by Meena Lakshana of theedgemalaysia.com

Monday, 11 August 2014 11:21

PETALING JAYA (Aug 11): Shareholders of Malaysian Airline System Bhd (MAS) have been advised to accept the offer by Khazanah Nasional Bhd in order to pave the way for privatisation of the beleaguered national airline.

According to a report from AllianceDBS Research Sdn Bhd, the proposed selective capital repayment (SCR) of 27 sen to minority shareholders is a “timely exit opportunity” as the research firm expects an imminent cash call amid negative momentum of earnings.

"We view the SCR as a timely exit opportunity for the minority investors, particularly as earnings momentum remains negative with an imminent cash call expected.

“The offer price of 27 sen implies a 4.1x FY14F price-to-book ratio (excluding the perpetual sukuk) and 21x FY14F earnings before interest, taxes, depreciation, and amortisation, AllianceDBS analyst Tan Kee Hoong said in the report.

Khazanah proposed SCR of 27 sen to MAS minority shareholders, represents a 12.5% premium to the stock's last closing price

MAS’s shares were priced at 24 sen on Thursday, before trading was suspended the following day.

Tan said as Khazanah intended to execute a restructuring plan for MAS, the entry of a strategic partner “cannot be ruled out” as substantial amount of capital would be needed towards its purpose.

He also foresees other domestic airlines like AirAsia Bhd benefitting from MAS’ restructuring plan.

“As part of the restructuring, we expect MAS to realign or downsize its network and withdraw from unprofitable routes,” he said.

“This would remove the excess capacity within the industry, and bring yields to more sustainable levels, while benefitting the other domestic airlines (AirAsia, AirAsia X),” he added.

However, Malaysia Airports Holdings Berhad (MAHB) and Brahim’s Holdings Bhd could see near-term earnings slackening, if MAS downsizes its network, said Tan.

Khazanah plans to de-list MAS under its restructuring plan. On Friday, Khazanah had requested MAS to undertake a selective capital reduction and repayment exercise, which would result in the investment arm becoming the sole ordinary shareholder of MAS.

The state investment arm owns 69.3% of shares, or 11.59 billion. Under the plan, Khazanah will have to pay RM1.38 billion to take over the remaining 5.118 billion shares, which it does not own.

The move to delist the national carrier comes after one of its Boeing jets, MH370, went missing on March 8, followed by the shooting down of MH17 over Ukrainian airspace on July 17.