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KUALA LUMPUR (Oct 9): CGS-CIMB has maintained its “reduce” rating on AirAsia X Bhd at 4 sen with an unchanged target price of zero sen after AAX announced a debt restructuring scheme that entails a 98% haircut for its unsecured creditors, and the cancellation of all its outstanding contracts.

In a note Oct 8, CGS-CIMB’s Raymond Yap said if successful, this may give AAX a fresh start with a lower operating cost base, potentially allowing AAX to restart its operations down the road.

“Even with the debt restructuring, we calculate that AAX’s equity value will remain below zero," he said.

Yap said to effect the proposed debt and corporate restructuring proposals, AAX needs High Court and shareholder EGM approvals, and must convene a creditors’ meeting wherein creditors holding 75% of the total unsecured debts will need to approve the debt restructuring proposal.

He explained that if the unsecured creditors agree, they can get back a maximum of 2% of what is owed to them but will have to wait for as long as five years.

“However, if they do not agree, then AAX will likely be liquidated and the unsecured creditors are likely to get close to nothing.

“The aircraft lessors, in particular, may struggle to redeploy their aircraft to other airlines during the Covid-19 pandemic,” he said.

Yap said if AAX successfully pulls off the debt restructuring, its June 30 shareholders’ equity position will improve from negative RM960,100 million (actual) to negative RM385,000 million (proforma), or negative 9.3 sen per share.

“As we expect AAX to continue to report losses in 2H20F and 1Q21F, the negative shareholders’ equity position may continue to widen before the restructuring is completed.

“Our calculations suggest that even after a successful debt restructuring, AAX’s shareholders’ equity will remain below zero, therefore requiring a subsequent, post-restructuring equity injection in addition to additional debt capital,” he said.

At 11.58am, AAX shares were flat at 4 sen, for a market capitalisation of RM195.93 million.


http://www.theedgemarkets.com/article/cgscimb-airasia-x-equity-value-will-remain-below-zero-even-debt-restructuring