Thursday, June 14, 2012

Malaysian Airline System:Issuance of Perpetual Sukuk (TA)

Malaysian Airline System Berhad
TP: RM 1.10
Last Traded: RM 1.12
52-wk Hi/Lo (RM) 1.90/1.02
Issuance of Perpetual Sukuk

What’s the news
Malaysia Airlines System Bhd (MAS) has issued the first tranche of the Junior Sukuk amounting to RM1.0bn yesterday. The sukuk, which is perpetual in nature, was issued at par with a coupon rate of 6.9%.

Our take
Fully subscribed
The issuance of Perpetual Sukuk Bond of up to RM2.5bn is part of the RM9.0bn funding plan, which was unveiled last month after the share swap agreement with AirAsia was unwound. According to the announcement, the first tranche of RM1bn was fully subscribed by Kumpulan Wang Persaraan (KWAP) and issued yesterday. MAS also stated that it has also obtained firm commitments for the remaining RM1.5bn. Perpetual sukuk bond carry a call option for MAS to redeem the sukuk bond at the end of the 10th year and on each following periodic distribution date.

Perpetual bond to improve gearing
The group is currently sitting on a cash position of RM1.4bn and debt amounting to RM7.0bn (short term and long term borrowing amounting to RM2.6bn and RM4.4bn respectively). The debt to equity ratio will improve to 2x (from 7.6x as at 31 Mar) with the additional RM2.5bn bonds, which would be treated as an equity component. As at 31 Mar, the group has a negative operating cash flow of RM202mn, we believe the annual coupon payment that works to RM172.5mn (based on full issuance of RM2.5bn) would likely burden the group’s operating cash flows in the near term. However, we note that MAS may also defer periodic distributions but the deferred distributions will be cumulative.

Near term cash flow problem lifted, earnings outlook in doubt
The funds raised from the bond issuance are expected to be used for its working capital needs and refinancing of existing borrowings. To recap, MAS unveiled its RM9.0bn funding plan last month, comprising the issue of RM2.5bn of perpetual Sukuk, the setting up of a funding special purpose vehicle owned by Ministry of Finance to raise RM5.3bn to pay for eight aircraft, and an aircraft loan facility of up to RM1.2bn to fund the remaining capex for 2012. Note that five of the aircraft would be delivered in 2012, remaining three aircraft would be delivered in 2013. Overall, we are positive on issuance of perpetual bond and the introduction of the funding plans as they serve to address MAS’s cash flows problem. Nevertheless, we maintain our bearish view on MAS’s earnings outlook due to tough operating environment and the inability to effectively reduce its operating costs.

Valuation
We maintain our Sell Recommendation for MAS with an unchanged target price of RM1.10/share, premised on a 50% discount of P/Sales ratio of 0.6x.


Source/Extract/Excerpts/来源/转贴/摘录: TA-Research,
Publish date: 13/06/12

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