KUALA LUMPUR (May 22): Malaysian Airline System Bhd (MAS) has proposed to launch a Sukuk programme of up to RM2.5 billion to shore up its capital base and as one of three main pillars to address its working capital requirement.
In a statement Tuesday, MAS said the proposed Sukuk instrument would be a hybrid equity capital structure whereby the “bulk of the issue size, if not all, would be recognised as equity capital in MAS’s balance sheet”.
MAS said the Sukuk would have an effective tenure of 10 years, as MAS would have a call option to redeem the Sukuk in full from year 10 onwards.
“For the first ten years, the profit rate payable on the Sukuk is based on the prevailing market rate at the time of issuance, and after the tenth year, the profit rate payable on the Sukuk would rise by a pre-determined rate,” it said.
MAS said it anticipated to drawdown the first tranche of RM1 billion of the proposed Sukuk sometime in June 2012 once all regulatory approvals were cleared and for the remaining amount of the programme later.
The airline said it had received a bridging loan of RM1 billion from a local commercial bank on March 30, 2012 to ensure its working capital cash balances remained adequate until the expected the drawdown of the first tranche of the Sukuk.
MAS said the second pillar of its funding plan was its proposal to lease its new aircraft from an external entity.
“We are in discussion with MoF Inc to lease six new Airbus A380s and two new Airbus A330s with a total capital value of RM5.3 billion from an SPV, which would be wholly owned by MoF Inc.
“Whilst we have received approval –in-principle to enter into discussions with MoF Inc, the proposed leasing arrangements is still pending the relevant government and regulatory approvals,” it said.
MAS said it proposed that such a funding SPV would issue bonds or Sukuk in the ringgit denominated capital markets and that such bonds / Sukuk be subscribed by institutional capital market investors.
“the proposed SPV funding shall be asset-backed or collateralised by the aircraft assets which it is financing and the operating cash flows generated from the assets would be sufficient to repay the lease obligation over the tenure of the funding.
“Therefore, MAS would enter into a long-term obligation to lease the aircraft from the SPV, whereby the operating risks and residual value risks of the aircraft assets are borne by MAS,” it said.
MAS said five of the aircraft would be delivered in 2012, and the remaining three aircraft be delivered in early 2013.
The national carrier said it would be receiving a specific capital expenditure bridging loan of RM1 billion from a consortium of commercial banks, to fund the delivery of the two of the aircraft in may 2012.
It said this bridging loan would be repaid by aircraft proceeds from the proposed funding SPV, which it expects to be in place sometime in July this year.
MAD said the third pillar of the funding plan was commercial funding of aircraft capital expenditure (capex).
“With the first two pillars in place, we are confident of raising the requisite funding for the remaining capex of 2012 from commercial sources, such as operating leases, finance leases and commercial debt.
“Funding commitments and proposals have been received from numerous third party financiers for the remaining aircraft capex obligations in 2012, and also for some capex obligation in 2013,” it said.
MAD also expressed gratitude to its majority Khazanah Nasional Bhd for its continuing support.
“In the event of any shortfall from the three pillars of our funding plan , which we do not envisage, Khazanah shall provide financial support in the form of equity capital injection.
“That equity injection is to help finance any unfunded aircraft capex and also for any unfunded working capital needs, which there are none at this time. Such financing would only be forthcoming if and when required and subject to targets to be agreed,” it said.