AirAsia X raises $309 million from Malaysia IPO

AirAsia X, a low-cost, long-haul airline that operates primarily in Asia, has raised M$987.7 million ($309 million) from its Malaysian initial public offering after fixing the price near the bottom of the indicative range. The stock will start trading on July 10.

AirAsia X is controlled by AirAsia, the Malaysian low-cost carrier (LCC) founded by Tony Fernandes, and is responsible for all the long-haul international flights under the AirAsia brand.

The deal exceeds Cliq Energy’s $118 million offering in April as the biggest IPO in Malaysia so far this year, according to Dealogic. It is also the first deal of size in the Malaysian market since the general elections on May 5, when the ruling coalition won a thin majority to extend its decades-long rule of the country. The outcome of the elections had been seen as a key factor in deciding the direction of deal flow this year.

The AirAsia X IPO attracted good demand and was multiple-times covered, a source says. The buyers included pension funds and the participation by domestic institutions was particularly strong. Around 70% of the institutional tranche went to local investors, and the rest was allocated to international investors, the person notes.

The pricing came slightly earlier than expected, as the bankers involved felt they had sufficient demand to price the deal when the roadshow concluded as planned last Thursday, according to the source. The institutional bookbuilding was initially expected to continue until today.

Most likely, the acceleration was driven by the increasingly tough market environment. By closing the order books last Thursday and fixing the price the following day, the bookrunners were able to limit the negative impact on the deal from the continuing slump in share prices.

Global stock markets experienced another sharp sell-off after Federal Reserve chairman Ben Bernanke said on Wednesday that the central bank could start to wind down its stimulus programme this year if the economy is strong enough. The Hang Seng Index lost 2.9% on Thursday, while the FTSE Bursa Malaysia KLCI Index held up slightly better, falling just 0.6% that day. The Malaysian index extended its losses by another 0.4% on Friday, but is still up about 4% since the start of the year.

AirAsia X’s selling points included the fact that it is a well-known brand in the region, and that it operates in one of the fastest growing markets in the world, according to one source.

The offering comprised 790.1 million shares, which represent 33.3% of the enlarged share capital. The shares were marketed at a price between M$1.15 and M$1.45 each, which indicated a deal size of $294 million to $370 million, and eventually priced at M$1.25.

The deal consisted of 75% primary shares and 25% secondary shares. Some 68.1% of the shares were targeted at institutions, while the remaining 31.9% were offered to retail investors.

It comes with a greenshoe option of up to 15%, which can increase the size of the deal to as much as $355 million if fully exercised. The shoe is made up of all secondary shares.

The selling shareholders were Aero Ventures, Orix Airline and Manara Malaysia I. As a result of the IPO they will see their combined stake reduced to 47.2% from 74.0%, according to the draft prospectus. Investment holding company Aero Ventures, which is controlled by AirAsia CEO Tony Fernandes and his partners, owned 52.2% of AirAsia X before the transaction, while Orix Airline and Manara held 10.9% each.

The final price translates into a price-to-earnings ratio of 20.3 times for 2013, and 7.8 times for 2014.

One of its key comps is AirAsia, which is trading at a P/E multiple of around 9.8 times for 2013 and 8.9 times for 2014, according to Bloomberg data. Thailand-listed Asia Aviation, the holding company of budget airline Thai AirAsia, is trading at multiples of around 16.7 times for this year and 12.6 times for 2014, the data show.

AirAsia X plans to use the proceeds to pay for the acquisition of engineering- and aircraft-related equipment, to set up of new hubs, to repay bank borrowings and for general working capital, according to another source.

The airline currently serves 14 destinations across Asia, Australia and the Middle East from its hub in Kuala Lumpur. It operates a fleet of nine A330-300s for scheduled services, and has two A340-300s that are currently wet-leased, according to the draft prospectus. Under a wet lease, the airline leases its aircraft together with a complete crew, maintenance and insurance to another airline. The fleet represents the largest LCC wide-body aircraft seat capacity in the Asia-Pacific region, it says.

Its passenger volume increased at a compound annual growth rate of 76.8% from 2008 to 2012, and its revenue grew to M$2 billion ($626 million) last year from M$230.7 million in 2008.

CIMB, Credit Suisse, and Maybank were joint global coordinators for the IPO, and Barclays, BNP Paribas, Citi, CLSA, HSBC, and Morgan Stanley joined them as bookrunners.