Wednesday, January 25, 2017

On Airasia's private placement to the founders

I have written a lot about private placements. Some I am positive, most of them, I am negative. I have written about Airasia's private placement (PP) the day after the announcement of the PP to the founders on 2 April 2016. If you read many of my articles on Airasia, I actually prefer for a rights issue - and I meant it (why not), but if one is to study the exercise during then - 1 April 2016 (please look at the below chart) - they can't do rights issue at that point of time. The share price was climbing from a low of RM0.78 where many would have thought Airasia was a candidate for bankruptcy due to its debt. There was not going to be any bankruptcy as their debts are really long term with strong positive cashflow to support - period.

It will be deemed as Airasia was desperate for funds (from its public shareholders) and that would have been detrimental towards the company. Then, if the founders decided to put in and committed their own money, nobody can complain. If one can remember, the closing price for Airasia on 1 April 2016 was RM1.84 - and that was what the price for PP. There was no discount, unlike many of the PP that are announced i.e. up to 10% discount.

Again, I do not like the PP as I knew the founders gotten them for a good price and based on that article I wrote, if one know how to read the action well, investors could have purchased Airasia then at RM1.84. One would have gotten the shares similar to the PP price.

Again, on PP - one of my holdings - Ecoworld, actually is currently doing a huge PP of 30% (yet to complete as there are many rounds). Theirs to me is very fair. Why? The founders cum controlling shareholders commit themselves first at RM1.30. At one point of time, their shares were traded at RM1.22 and the founders still put in cash for more shares at RM1.30. That makes the entire exercise looks fair.

The one PP that is really bad is WCT's and I still keep my opinion to it.

I hope this explains.


Yellow said...

Well written

Anonymous said...

If you look at the deal in totality, then u see the Founders have screwed the minority big time..1st they take advantage of the low share price to do a big placement to themselves in the name of the company needs money...but the deal was purportedly held up by Bank Negara until if Air Asia is that desperate for money, the placement will not solve its problem, cynics will say there are other reasons. And coincidentally, as soon as the Founders up their stake to 32%, the Leasing arm sale will soon be done and a big special dividend will soon follow, which the Founders will benefit significantly

felicity said...

You are correct. This shows that the founders are relying on borrowed money to do the PP. But whatever we may be grouse about AA's shares were trading below RM1.60 for close to a year between 2015 and 2016. There have been ample time, enough data to show that it was way undervalued. The founders took the opportunity and it reduced the value of my shares. Actually it did not do harm that much as most of my purchases were around RM1.30.
Sometimes, we can get angry but we have also to take the opportunity ourselves. AA was screamingly undervalued. And now my opinion is still the same. Not screamingly undervalued, but enough for most people who understands margin of safety.