Jul 4, 2014

Malaysia - Privatisation of Malaysia Airlines mere speculation

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Malaysia Airlines (MAS) shares went up two sen on reports suggesting that the airline may be privatised by Khazanah Nasional Limited.

But in a late press statement yesterday, Khazanah dismissed the reports as “speculative”.

“A comprehensive review of restructuring options for MAS is being undertaken and evaluated,’’ it said.

“The resolution of this review will be made after due consideration and after respective approvals from the relevant parties and authorities, including the approval of the special shareholder, finance minister, Incorporated.”

MAS shares shot up to as high as 24.5 sen yesterday, the highest single-day spike since October 2007, although it subsequently ended the day at 23 sen, with 19.419 million shares changing hands.

MAS told Bursa Malaysia yesterday: “As of now, MAS is not aware of any decision that has been made by both of them (Khazanah and the government) on this matter.’’

The market is already pricing that a drastic decision needs to be taken to save MAS.

Maybank Investment Bhd senior analyst Mohshin Aziz said that even if MAS were to be privatised in six months’ time as speculated, “we think it might be a tad too late as the company would have exhausted its cash resources and its gearing level would have risen to more than five times.’’

He reiterated that MAS had a cash burn rate of around 5 million ringgit (US$1.57 million) a day.

The airline had a cash hoard of 3.1 billion ringgit ($971.8 million) as at the end of last year.

“We do not think it can reverse this any time soon due to weak markets and the aftermath of MH370,’’ Mohshin said in a research note.

He continues to have a “sell” call on the stock with a fair value at 12.5 sen a share based on a price to book value of 1.0 times.

“We are convinced that MAS needs to make another round of capital raising… and therefore see no reason for anyone to own this stock for now,’’ Mohshin said.

On Wednesday, a newswire report quoting sources said Khazanah planned to take MAS private as the first step in a major restructuring and that a de-listing of MAS from the stock exchange would pave the way for the revival of the ailing airline.

The report speculated that the exercise would involve the sale of MAS’ profitable engineering, airport services and budget airline units.

It would also entail trimming MAS’ workforce and the installation of a new management team.

Khazanah managing director Azman Mokhtar had said last month that it was considering all options and would unveil a restructuring plan within six to 12 months.

MAS has been making losses for several years and the disappearance of flight MH370 has thrown it into a tailspin requiring urgent restructuring, insiders say.

Newly-appointed transport minister Liow Tiong Lai is expected to meet MAS management next week on critical changes needed for MAS to make its business viable.

Post-MH370, MAS has seen a slide in bookings. For its May monthly operating statistics, MAS experienced about a 10 percentage points drop in its international load factor.

MIDF Research said the drop suggested the adverse impact of MH370 and estimated that MAS’ net core losses would rise from the first quarter’s 342 million ringgit ($107.2 million) to between 400 million ringgit ($125.4 million) and 500 million ($156.7 million) in the next few quarters.

It also maintained a “sell” call on MAS shares. Of the 15 research houses tracking the company, 13 have a “sell’’ call and two a “hold” call.

B. K. Sidhu

Business & Investment Opportunities 
Saigon Business Corporation Pte Ltd (SBC) is incorporated in Singapore since 1994. 

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