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AirAsia X, the long-haul business of Malaysian budget airline AirAsia, plans to offer up to 790.1 million shares in its initial public offering and use the proceeds for capital expenditure and the repayment of bank borrowings, the airline said in a draft prospectus issued late last week.
Although details may change as the process is still at an early stage, the deal size is currently expected to be about $250 million, sources said yesterday. AirAsia X is aiming to list in Kuala Lumpur sometime during the first half of next year, according to one source.
The move comes after Asia Aviation, the holding company of Thai AirAsia, raised $229 million from an IPO and concurrent placement in May. AirAsia has also expressed an intention to list its associate Indonesian business. The idea behind the separate listings is to enable its various units to accumulate capital and debt so that they can buy their own aircraft in the future, thus easing the financing burden and leverage at the group level. The plan for an IPO of AirAsia X was first flagged to investors in early 2011.
As the budget airline industry has enjoyed growth in the region, two other Asian low-cost carriers also went public in 2010. Early that year, Tiger Airways raised $178 million through a Singapore IPO while in October, Cebu Air pocketed $611 million from an IPO in the Philippines.
AirAsia X is looking to sell up to 790.1 million shares, of which 197.5 million will be existing shares and 592.6 million new shares. Some 86.8% of the deal will be targeted at institutional investors, while the remaining 13.2% will be set aside for the retail tranche.
The total deal size represents up to 33.3% of the enlarged paid-up share capital.
The selling shareholders — Aero Ventures, AirAsia, Orix Airline and Manara Malaysia I — currently own 92.3% of the company but will see their combined stake drop to 60.9% as a result of the IPO, according to the draft prospectus.
Investment holding company Aero Ventures, which is controlled by Tony Fernandes and Asmat Bin Kamaludin who are both substantial shareholders of AirAsia, currently has a 52.2% stake in AirAsia X, while AirAsia owns 18.3%, and Orix Airline and Manara hold 10.9% each.
AirAsia X currently serves 12 destinations across Asia (Tokyo, Osaka, Seoul, Taipei, Beijing, Hangzhou, Chengdu and Kathmandu) and Australia (Sydney, Melbourne, Perth and Gold Coast), and also conducts chartered flights to the Middle East (Jeddah).
AirAsia’s key focus is on shorter regional flights, but investors will likely look at the parent company as one of its main comparables, according to sources. For reference, AirAsia trades at an estimated 2012 price-to-earnings ratio of around 8.4 times, according to Bloomberg data.
AirAsia X aims to be a leading long-haul low-cost carrier globally and to create, together with other carriers in the AirAsia group, the first global, multi-hub, low-cost carrier network, it said in the draft prospectus.
It added that it plans to expand its passenger base by growing its route network. More specifically, it will be increasing the frequencies of its existing core routes out of Kuala Lumpur, opening new routes in existing core markets, establishing routes to new markets in the medium term and creating new operational hubs.
It also plans to grow its fleet of new, fuel-efficient aircraft — it intends to increase its fleet size to 32 planes by 2016, both through purchasing and leasing of aircraft. It said that it will fly only A330-300s and A350-900s going forward, and expects that the greater fuel efficiency and the longer range of the A350 will enable it to fly to destinations that would not be commercially feasible with its current fleet.
AirAsia X currently operates a fleet of nine A330 aircraft for scheduled services, and has two A340s for non-scheduled wet-lease and charter operations, which it said represents the largest low-cost carrier wide-body aircraft seat capacity in the Asia-Pacific region.
With an estimated population of 3.4 billion in 2012 and projected growth of up to an additional 163.3 million people by 2017, the Asia-Pacific region will continue to be a large and attractive feeder market for its long-haul routes, according to the draft prospectus.
Among the risk factors, AirAsia X cited the highly competitive industry and its ability to obtain regulatory approvals and licences to operate in its existing markets and to gain access to new ones.
In 2011, AirAsia X booked M$1.86 billion ($600 million) in revenue, up from M$710.8 million in 2009.
CIMB, Credit Suisse and Maybank are joint global coordinators for the deal. Barclays, BNP Paribas, Citi, HSBC and Morgan Stanley join them as bookrunners for the institutional offering.
The benchmark FTSE Bursa Malaysia KLCI index is up about 8% since the start of the year. AirAsia fell 0.3% yesterday and is down about 19% so far this year.
