The initial public offering of Asia Aviation, the holding company of budget airline Thai AirAsia, is set to raise Bt4.49 billion ($143 million) after the price was fixed near the top end of the price range.
The deal drew strong demand from both international and domestic institutions, and priced at Bt3.70 per share, after being marketed at a price between Bt3.30 and Bt3.80, sources said.
In addition to the IPO, a number of existing shareholders are also selling secondary shares through a private placement to domestic institutions and retail investors that will be sold at the same price as the IPO. It will be completed the day after the listing and will raise $86 million, bringing the total deal size to $229 million.
A private placement alongside an IPO is common practice in Thailand and is a way for the major shareholders to get around paying capital gains tax on their share sale. The bookrunners were taking orders for the IPO and the placement at the same time.
The IPO portion comprised 1.2 billion shares, or 25% of the enlarged share capital. About 61.9% were new shares issued by Asia Aviation, while the remaining 38.1% of the deal comprised existing shares.
Asia Aviation is a holding company that is wholly owned by Thai AirAsia’s management and whose sole investment is its 51% stake (pre-IPO) in the Thai airline. The remaining 49% of Thai AirAsia is owned by Malaysia’s AirAsia, Asia’s biggest low-cost carrier.
The placement accounted for a further 15% of the enlarged share capital, which translated into 727.5 million shares. This brought the total number of shares offered to investors to 1.94 billion.
The selling shareholders in the IPO and the placement included Thai AirAsia’s chief executive, Tassapon Bijleveld, and other company executives.
Two-thirds of the IPO, or 800 million shares, were offered to institutional investors, while the remaining third will be sold to retail investors between May 23 and 25. The institutional tranche was split evenly between international and domestic institutions.
The international portion was more than 10 times covered and the domestic institutional portion was also close to 10 times covered, one source said. In total, almost 70 institutional investors took part in the transaction.
Another source said the demand came from across the board, from long-only investors, Thai funds and hedge funds. Hedge funds appear keen to take part in Southeast Asian transactions at the moment, the person noted.
The final price values the company at a 2012 price-to-earnings multiple of 13.9 times, a premium to comparable companies — for example, Malaysia’s AirAsia trades at a P/E ratio of 11.1 times, one of the sources said.
At $143 million, this is the second-biggest IPO in Thailand this year, after the $600 million offering by the Thai unit of UK supermarket chain Tesco in March. The third-biggest offering so far raised just above $100 million.
The deal comes after two other Asian low-cost carriers went public in 2010. In February that year, Singapore-based Tiger Airways raised $178 million through an IPO and, in October, Cebu Air pocketed $611 million from the Philippines’ largest listing in US dollar terms.
Tiger Airways, which is one-third owned by Singapore Airlines, attracted a lot of interest for its IPO but has been struggling during the past year — particularly in the highly competitive Australian market. Last week it reported its full-year results to March 2012, which showed a net loss of $104.3 million, compared with a net profit of $39.9 million during the previous year. The company blamed the earnings decline on the temporary grounding of its Australian fleet due to safety violations and the substantial increase in fuel costs.
While the budget airline industry is expected to grow further in coming years, higher fuel prices is a key challenge as fuel costs tend to account for about 40% to 50% of an airline’s operating costs.
But Asian low-cost carriers have newer and thus more fuel-efficient planes, which helps to mitigate the effect of higher fuel prices, said Corrine Png, head of regional transportation research at J.P. Morgan, in an interview last week. The average fleet age for Asian low-cost carriers is about three years, compared to an overall average of nine years for the region’s airline industry, she said.
Asia Aviation plans to use the IPO proceeds to subscribe for new shares in Thai AirAsia to increase its shareholding to 55% from the current 51%, according to a term sheet. This will ensure that the money raised is transferred to the operating unit. Thai AirAsia will use the money to expand its fleet between 2012 and 2014, as well as for working capital and general corporate purposes.
Thai AirAsia has three hubs in Thailand and serves both domestic and international routes. Its international destinations include Malaysia and Hong Kong.
CIMB, Credit Suisse and Thanachart Securities were joint global coordinators and bookrunners for Asia Aviation’s IPO, although Credit Suisse was not involved in the private placement portion of the deal. The listing is scheduled for May 31.
