Malaysian Airline System Bhd. (MAS) will be delisted after sovereign wealth fund Khazanah Nasional Bhd. offered to buy out minority shareholders in a restructuring plan for the national carrier that suffered two disasters this year.
Khazanah will pay 27 sen a share for a total of 1.38 billion ringgit ($429 million) to buy the remaining 30.6 percent it doesn’t own, it said in a statement today. The airline will need “substantial funding requirements” for the next few years to sustain operations, it said.
The carrier is struggling to stem losses and repair its image after the downing of Flight 17 in Ukraine last month compounded woes from the disappearance of a jet in March. Malaysia Airlines has grappled with increased competition and higher costs even before Flight 370 vanished, as low-cost rivals flooded the region with planes and drove down fares.
“By privatizing it first, it makes the restructuring easier,” said Jason Chong, who helps manage close to $2 billion as chief investment officer at Manulife Asset Management Services Bhd. in Kuala Lumpur. “If you leave it as a public-listed company, there’s a lot more regulatory requirements that you have to adhere to.”
Malaysia Airlines’ shares had dropped 23 percent this year prior to today’s request for a suspension. Khazanah’s offer is 12.5 percent higher than yesterday’s closing price. The carrier’s board will discuss the proposal, and business operations remain unchanged, it said in a statement today.
The company missed its target to be profitable last year as rising prices for items including fuel, maintenance and financing wiped out revenue gains. In May, it pointed to an unfavorable foreign exchange rate environment as an additional challenge this year.
“The proposed restructuring will critically require all parties to work closely together to undertake what will be a complete overhaul of the national carrier on all relevant aspects,” Khazanah said. “Nothing less will be required in order to revive our national airline to be profitable as a commercial entity.”
Flight 17 was shot down in Ukraine in July, four months after a jet en route to Beijing from Kuala Lumpur vanished. The earlier incident put the carrier under global scrutiny, jeopardizing its reputation and prompting boycotts in China, whose nationals accounted for most of the passengers in the March flight. No trace of the plane has been found.
Even before that disappearance, Malaysia Airlines had racked up 4.13 billion ringgit in losses over the previous three years. Khazanah said it is in the final stages of completing a restructuring proposal, and expects to unveil detailed plans by the end of August.
The carrier will probably lose more than 1 billion ringgit in 2014, according to average analyst estimates compiled by Bloomberg. Khazanah said in June the carrier had funds to last about a year. Privatizing the company will allow “greater flexibility” to restructure the airline which traces its routes to 1937, it said today.
Options for a revival plan for the airline had ranged from Khazanah taking it private to bankruptcy, with both routes involving a delisting, a person familiar with the matter said last month, asking not to be identified because the talks were private. Malaysia Airlines director of commercial operations Hugh Dunleavy had in May ruled out a bankruptcy.
The airline said it carried 3.1 percent fewer passengers in June from a year earlier, and filled 77 percent of its seats, down from 84 percent a year earlier.
Before the loss of Flight 370, the carrier had anticipated ordering as many as 100 jets and was considering a range of models from both Airbus Group NV (AIR) and Boeing Co. (BA), a person familiar with the purchase strategy said in February. Chief Executive Officer Ahmad Jauhari Yahya said in an interview in June the carrier’s fleet plan was under review.