KUALA LUMPUR (Jan 17): The share price of AirAsia continued its downtrend in the early session on Monday (Jan 17) amid weaker sentiment after the group was classified as under Practice Note 17 (PN17) status following its failure to secure an extension of the relief period from Bursa Malaysia.

As at 10.30am, AirAsia had declined 2.5 sen or 4.03% to 59.5 sen, with 35.54 million shares traded.

AirAsia group chief executive officer Tan Sri Tony Fernandes recently gave an assurance that the group was in the midst of formulating a plan to regularise its financial condition to address its PN17 status, and relevant announcements will be made in due course.

AirAsia was supposed to have been classified as a PN17 issuer 18 months ago when its auditors raised significant uncertainties in its 2020 audit report that cast doubt on the group's ability to continue as a going concern.

However, AirAsia was given a general waiver by Bursa until Jan 7, 2022 as part of its Covid-19 relief measures, but the bourse declined to extend the waiver despite an appeal from the group, but there was no immediate implication for its listing status. 

CGS-CIMB estimated that AirAsia would need a RM7.39 billion boost to its shareholders’ funds (on a pro forma basis) as at Sept 31, 2021 to be removed from classification as a PN17 company, which the brokerage think would be extremely challenging to achieve.

"Only RM193 million or 20% of the RM974.5 million redeemable convertible unsecured Islamic debt securities (RCUIDS) has been converted into shares so far, and further conversion will not be imminent, as AirAsia's share price is now just 62 sen, below the RCUIDS conversion price of 75 sen,” it added.

The brokerage also noted that the RM650 million warrants were also unlikely to be converted as the exercise price is RM1.

"In our view, AirAsia may explore the deconsolidation of Indonesia AirAsia and Philippines AirAsia, which may improve its shareholders’ funds position by RM2.250 billion on accounting grounds.

"Alternatively, Airasia may consider selling down stakes in its various digital businesses to below 50% to benefit from fair value accounting revaluation gains," CGS-CIMB noted.

Meanwhile, the brokerage said a potential PN17 classification would have negative implications for AirAsia's share price as it believes most institutional investors would not be permitted by their mandates to invest while retail investors may panic and dump the shares.

"Derating catalysts include credible information that a new ultra-low-cost carrier airline is currently in the process of seeking regulatory approval to set up in Malaysia, having signed deals to lease two A320s at cheap leasing rates,” it added.