AirAsia parent plans potential  IPO for Philippine operations

By Ashley Erika O. Jose, Reporter

CAPITAL A Berhad, the parent firm of AirAsia Philippines, said it would continue to expand its funding sources including through an initial public offering (IPO) for its operations in the Philippines.

In a media release, the Malaysian multinational company said fund-raising efforts are continuing after the group secured debt financing amounting to $179 million from Bangkok Bank and Citibank.

“The impending revenue bond of $200 million from the international credit market will be the first capital raise earmarked for the expansion of the airline, which will be followed by an equity raising including potential IPO issuance for AirAsia Philippines,” the group said.

The company said it expects its lease liabilities to be restructured by December, adding that the group recorded revenues of 4.2-billion Malaysian ringgit.

“In the coming months, the Group anticipates making significant announcements regarding asset disposals and public listings, positioning the company on a solid foundation for future growth,” it said.

“As we approach the final quarter, we are expecting a revenue upswing, exceeding pre-pandemic levels. This optimistic outlook is based on robust travel demand during the peak season, which enables us to command premium fares and boost ancillary income,” said Bo Lingam, chief executive officer of AirAsia’s aviation group.

The financial performance of AirAsia Philippines and the overall market conditions are among the factors that could affect investors’ appetite for the planned IPO of AirAsia Philippines, analysts said.

“AirAsia Philippines has a strong track record of profitability, and investors may be attracted to its low-cost business model. However, the airline is also facing challenges from rising fuel costs and increased competition,” Globalinks Securities and Stocks, Inc. Head of Sales Trading Toby Allan C. Arce said in a Viber message.

The aviation industry is still recovering from the pre-pandemic levels and some investors may still be cautious about investing in airlines, Mr. Arce said.

“However, the Philippine aviation market is expected to grow in the coming years, driven by increasing tourism and a growing middle class,” he said.

According to the Department of Tourism, the country welcomed 4.82 million international visitors as of November, which exceeded its target for 2023 at 4.8 million.

“The ultimate success of the IPO will depend on the overall market conditions and the airline’s ability to execute its growth strategy. It’s a challenging time for an IPO for AirAsia Philippines, but it’s not impossible,” Mr. Arce said, citing inflation and interest rates, which are also factors that could affect investor appetite.

Headline inflation further slowed to 4.1% in November from 4.9% in October on lower prices of food, transport, and restaurant and accommodation services, according to the Philippine Statistics Authority on Tuesday.

November inflation, for the 20th straight month, was still above the 2-4% target.

“Market appetite for airline stocks remains subdued. Interest rates remain elevated and the shares of Cebu Pacific and Philippine Airlines are trading near their 52-week low, so it is not the best time for AirAsia to IPO,” China Bank Capital Corp. Managing Director Juan Paolo E. Colet said in a Viber message.

Mr. Colet said that a potential IPO window can open in the second half of 2024 citing expectations of a dovish shift in monetary policy and better growth prospects.

BusinessWorld sought AirAsia’s comments about its timeline for its planned IPO but it has yet to reply at the deadline.

The feasibility of an AirAsia Philippines IPO depends on carefully balancing economic headwinds with industry-specific challenges and the company’s unique strengths. By strategically navigating these complexities, AirAsia Philippines could potentially succeed in its IPO ambitions,” Mr. Arce said.