MAS details restructuring plan and rights issue to repair its balance sheet

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Malaysia Airlines (MAS) has detailed a proposed capital restructuring and renounceable rights issue that is intended to "rationalise the balance sheet" of the carrier.

According to a statement issued on 27 November, the "reduction of MAS' accumulated losses" will be achieved by reducing the par value of each existing ordinary share of the company and its share premium amount.

It says the par value reduction of M$0.90 for each existing ordinary share of M$1.00 in MAS and reduction of the existing share premium account "will give rise to a credit reserve which will be utilised to reduce the accumulated losses of MAS, which amounted to M$7.8 billion as at 31 December, 2011."

According to MAS, the actual gross proceeds to be raised cannot be determined "at this juncture" as it would depend on the issue price and the level of subscription for the rights shares.

MAS intends to use "part of the proceeds" from the proposed rights issue for general working capital purposes, aircraft lease rentals, fuel expenses, aircraft maintenance, payments to creditors and other day-to-day expenses.

Specifically MAS intends to use the proceeds to fund pre-delivery payments for its remaining Boeing 737-800s acquired in June 2008 and Airbus A330s purchased in March 2010.

MAS also intends to "pare down some of its existing borrowings" of up to M$777 million. Based on the prevailing interest rate incurred by MAS of between 3- 5.5% per annum, the repayment is expected to result in an interest savings of approximately M$38.36 million each year, says MAS.

The total borrowings of the group at 30 September stood at approximately M$8.1 billion.

"The [MAS] board is of the view that as part of its ongoing efforts to rebuild the company, it is beneficial that the accumulated losses be significantly reduced to the extent possible by the proposed capital restructuring," says MAS.

"The resulting reduction of the accumulated losses will be more reflective of the fundamentals of the company and facilitates its objective to attain a stronger financial position moving forward."

CIMB has been appointed by MAS as the principal adviser for the proposed capital restructuring and proposed rights issue.