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AirAsia in buyout talks as share fall put loans at risk: Sources

By Saeed Azhar and Anshuman Daga
October 30, 2015 14:59 IST
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AirAsia founder Tony Fernandes began talks with bankers to take Asia's number one budget airline private after a plunge in its stock price put $200 million worth of loans borrowed against AirAsia's shares at risk, people familiar with the situation told Reuters.  

The Malaysian entrepreneur and his business partner Kamarudin Meranun, respectively Group CEO and Chairman of AirAsia Bhd, borrowed the money against their 19 per cent indirect holding in AirAsia from Credit Suisse and CIMB to help fund private ventures, people familiar with the situation said.  

A fall in AirAsia's share price though has led to a breach of the loans' collateral terms, according to two sources, and is one reason why the two businessmen have begun talks for a possible management-led buyout.  

Fernandes and Kamarudin did not reply to emails sent by Reuters or phone calls made to them. A Malaysia-based spokeswoman at AirAsia declined comment.  

The existence of the loans, which has not been publicly disclosed as the transaction is private, shows how the future of the airline, a key client of Airbus in Asia, is tied to the other investments of its founders.  

Two sources with knowledge of the situation said the loans were taken to help finance the 2011 purchase by Fernandes' holding company, Tune Group, of English football club Queens Park Rangers and to build up the Caterham Formula One team, two ventures which have subsequently struggled.  

Share-backed loans, common among Asian tycoons, require a large amount of collateral as they are subject to stock market volatility.  

It was not clear if Fernandes and his partners had been formally asked by the lenders to immediately provide more cash.  

There is no evidence Fernandes and Kamarudin, who have built a business empire with a value that exceeds the worth of the share-backed loans, would be unable to repay the money, although some of their wealth is tied up in sports and other private ventures.  

One source familiar with the situation said Fernandes would still be able to have a significant stake in AirAsia even after a privatisation and continue to lead it.  

A Hong Kong-based spokesman at Credit Suisse declined to comment. A CIMB spokeswoman did not respond to requests for comment.  

Fernandes and his businesses are also long-standing clients of Credit Suisse and CIMB, which are both involved in the privatisation talks, several sources said.  

Sports ventures  

Fernandes ceased funding the Caterham team last year and later sold it.

The team eventually went into administration, while loss-making Queens Park Rangers were relegated from England's top league in May this year.  

In June, research firm GMT Research said AirAsia used transactions with its associate companies to inflate earnings and said it needed to be recapitalised, triggering a sell-off in the carrier's shares that by late August had shrunk the value of the founders' stake to around $100 million.  

AirAsia has responded by saying it has a strong balance sheet and does not need additional capital.  

The fall and its impact on the loans caused Fernandes to discuss a privatisation and restructuring plan of AirAsia, the airline he had built over 10 years from a two-plane operation into a billion-dollar business, two sources said.  

All sources interviewed by Reuters declined to be identified because the discussions are private.  

AirAsia's shares have partially regained ground since the summer. Its market value is currently about $1 billion.  

The privatisation plan, now under discussion, envisages Fernandes and his partner selling their AirAsia stake, held through holding company Tune, to a special purpose vehicle, to allow them to pay off the loans, said one of the sources.  

Sources say AirAsia has also been in talks with lessors, including cash-rich Chinese companies, to sell a stake in its leasing subsidiary.  

This comes as AirAsia has been selling portions of its related businesses, including half of its stake in a joint venture with online travel company Expedia Inc.  

Fernandes, the face of the no-frills budget carrier's rise, has also built, through the Tune Group, a sprawling empire that includes a chain of budget hotels, an insurance firm, a mobile phone group and a school.  

GMT Research's June report came when AirAsia, already under pressure from slowing tourist flows in Asia, was facing challenges from the December 2014 crash of an Airbus Group jet operated by AirAsia's Indonesian affiliate that killed 162 people.  

The report helped push the airline's shares to their lowest levels since 2008.  

Fernandes has steadfastly defended the company's finances and outlook and said the market was undervaluing AirAsia.  

(Additional reporting by Yantoultra Ngui and Siva Govindasamy)

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Saeed Azhar and Anshuman Daga
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