AirAsia shares tumble nearly 13% as investors snub CEO talk on raising cash

AirAsia CEO Tony Fernandes.
AirAsia CEO Tony Fernandes.REUTERS

KUALA LUMPUR (REUTERS) - AirAsia Bhd's shares skidded as much as 13 per cent early on Wednesday as investors spooked by a report questioning the Malaysian budget carrier's accounting remained unconvinced by chief executive Mr Tony Fernandes' confidence that his firm can raise cash readily and has no need for recapitalisation.

At 0345 GMT (11.45 am Singapore time), the stock had regained some ground but was still down 7.9 per cent, giving Asia's biggest low-cost airline a market value of 4.6 billion ringgit (S$1.65 billion). Shares have dropped nearly 30 per cent, to five-year lows, since the June 10 report by little-known firm GMT Research first startled shareholders.

The slide came after Mr Fernandes responded to concerns about AirAsia operations while attending the Paris Airshow, without referring directly to the GMT report saying the carrier used transactions with associate companies to boost earnings. "We have so many cash-raising opportunities from our fleet, our investments, from our national cash operations, there is no need for a capital raise," the CEO told Reuters on the sidelines of the show.

On June 15, Mr Fernandes wrote to investors saying AirAsia plans to raise as much as US$300 million from convertible bond issues at loss-making associates in Indonesia and the Philippines, and will sell and lease back up to 20 planes. "The concern is whether they can execute the fund-raising. Until they announce something on this, the stock will remain weak," said Kee Hoong Tan, an analyst with Alliance DBS Research, who has a 'Hold' recommendation on the stock.

AirAsia would have to inject more of its own funds if it fails to find third-party investors and this would be a strain on its balance sheet, he said. "We don't see how the convertible bonds are going to get done. How can investors have the confidence to put money in the loss-making units?" said one transportation banker at a US bank, speaking on condition of anonymity.

Speaking in Paris before Wednesday's share slide, Mr Fernandes said AirAsia, which owns 128 aircraft and picked up a series of airline awards on Tuesday, could easily raise US$1 billion in sale and lease back deals, plus had investments worth US$500 million.

"We don't want to do too many because we don't need that much cash. But it's just to show the market that it can be done and crystallise the value," Mr Fernandes said. "We're a solid company with a solid balance sheet and a solid business plan." AirAsia officials weren't immediately available to comment on Wednesday's stock drop.