Would you buy what Richard Branson gave away: The Air Asia X IPO seems grossly over-priced


Tony Fernandes's AIr Asia X IPO is up and running after being talked about for the past three years. Media in Malaysia and elsewhere  have been happy to promote it, but are saying nothing of the fact that Richard Branson's Virgin Group sold out of his Air Asia X less than a year go, despite the impending IPO.

The following is presented to readers as a reference so that they may arrive at their own conclusions.

A) Fernandes's valuation of  Air Asia X, based on a reported IPO price of RM 1.30 per share, and    2,370,370,387 paid-up shares post-IPO :
(252/0.106)*1.3 = 3090.56603774 million 
(  Tan Sri Tony Fernandes will be on a roadshow to meet retail investors and remisiers across the country in early June for the AirAsia X (AAX) initial public offering, whose shares are likely to be priced at RM1.10 to RM1.30 a share. The airline is offering a larger retail portion than most companies in recent times, comprising 252 million shares or 10.6% of its enlarged share capital compared to 2%-5% offered by other companies to retail investors.Star,14 May 2013)

( Note: The prospectus states that the number of shares that will constitute  paid-up capital  post  IPO will be   2,370,370,387  , not 2, 377,358,491 as the report above suggests.S ee http://www.sc.com.my/eng/html/Prospectus/pdf/air_asia_x/4_details.pdf) 


B ) Richard Branson's valuation of the company, based on the selling price of his then  10% stake :
66/0.1= RM 660 million
(The Edge, 28 June 2012) 


592,592,600 new shares are to be issued at a price of RM1.30, increasing paid-up capital by RM 770,370,380. I shall leave it to readers to determine if that  injection of funds into the company could increase its value by almost RM 2.5 billion.

MALAYSIA PRESS-Virgin Atlantic to exit AirAsia X-The Edge
120 words
28 June 2012
10:36
LBA
English
(c) 2012 Reuters Limited
divest its 10 percent stake in AirAsia X Sdn Bhd to local
existing shareholders for more than $21 mln (66 million
ringgit).
This comes as Air Asia X, which easily qualifies as one
of the world's few long-haul budget carriers, prepares for
listing at the end of this year.

The Star Online > Business
Tuesday May 14, 2013
AirAsia X offers free tickets to any destination for initial public offering to retail investors
AirAsia CEO, Tony Fernandes (R) pretends to kiss Virgin Group founder and chairman, Richard Branson during a press conference at the Low Cost Carrier Terminal (LCCT) in Sepang, 12 May. Virgin boss Sir Richard Branson dressed like an air hostess and served passengers on a flight after losing a bet to AirAsia chief Tony Fernandes over their Formula I motor racing teams. = EPA/AHMAD YUSNIAirAsia CEO, Tony Fernandes (R) pretends to kiss Virgin Group founder and chairman, Richard Branson during a press conference at the Low Cost Carrier Terminal (LCCT) in Sepang, 12 May. Virgin boss Sir Richard Branson dressed like an air hostess and served passengers on a flight after losing a bet to AirAsia chief Tony Fernandes over their Formula I motor racing teams. = EPA/AHMAD YUSNI
PETALING JAYA: Tan Sri Tony Fernandes will be on a roadshow to meet retail investors and remisiers across the country in early June for the AirAsia X (AAX) initial public offering, whose shares are likely to be priced at RM1.10 to RM1.30 a share.
The airline is offering a larger retail portion than most companies in recent times, comprising 252 million shares or 10.6% of its enlarged share capital compared to 2%-5% offered by other companies to retail investors.
And to lure retail investors to subscribe to the IPO, AAX is dangling a zero fare return air ticket to any destinations flown by the airline to investors that buy 10,000 IPO shares, and 3 tickets for those who buy 100,000 IPO shares as part of its shareholder benefit programme.
“It was my idea that we should meet retail investors because when I was young and was in England, I saw a lot of retail-based IPOs such as British Gas, British Telecoms and even that of my good friend Sir Richard Branson's Virgin group. It was for the public.
“Since we have benefited from Malaysians that fly with us, and rather than just the institutional investors benefiting from the IPO, we thought it was good to let Malaysians benefit by offering them free tickets if they subscribe to the shares,'' AAX director Fernandes told StarBiz yesterday.
While Fernandes said he would do his ceramah-style talks to retail investors in Malaysia, AAX CEO Azran Osman-Rani would meet institutional investors here and abroad.
The retail roadshow would be for a week and Fernandes (pic) claimed it was “something not done before. We will do the unconventional by talking directly to retail investors instead of sticking to just the traditional way of meeting only institutional funds.''
“Normally the public allocation is small, about 2% but we are offering a lot more shares for the public portion as we want them to be involved in the airline (as shareholders),'' he said.
He added that “we are always giving out free seats, so why not give them to those that subscribe to our shares. And if you keep the shares, you will get free tickets every year (for a maximum of three years).''
AAX, which is a sister company of AirAsia Bhd, plans to sell 790.12 million shares to raise US$300mil and and part of the funds will be used to finance new aircraft purchases. The airline is expected to take delivery of seven Airbus A330 this year.
AAX is headed for the Main Market of Bursa Malaysia and the listing is scheduled for July 10. It plans to start taking orders from institutional investors from June 10.
Fernandes declined to give any numbers, but analysts are valuing the company at RM1.50-RM1.70 a share. Those very bullish say it is about RM2 a share. Though analysts are looking at the IPO of RM1.30-RM1.40 a share, others think it could be lower at RM1.10 a share. But these are early days and the final pricing would be known later.
“AAX is a growth story. There is demand for budget air travel across the region and it wants to tap into that. It is tripling its fleet in three years. But of course like any airline, it is sensitive to exchange rates and fuel prices, and yields can come under pressure with excess demand but it is be able to keep a high and stable path with loads of about 80% in the medium term,'' said an analyst.
After the IPO, the major investors of AAX are Aero Ventures Sdn Bhd with 34.4%, AirAsia 13.7%, and both Orix Airline Holdings Ltd and Manara Malaysia Ltd with 6.4% each.
Apart from the retail portion of 10.6%, the others making up the 790 million shares are Miti bumiputra investors with 11% and local and foreign institutional funds with 11.7%.
AAX currently serves 14 destinations with 11 aircraft across Asia and it plans to expand further into North Asia and Australia.
CIMB Group Holdings Bhd, Malayan Banking Bhd, Credit Suisse Group AG and Morgan Stanley are joint global coordinators for the offering. Barclays Plc, BNP Paribas SA, Citigroup Inc, CLSA Ltd and HSBC Holdings Plc are helping manage the offering.

© 1995-2013 Star Publications (Malaysia) Bhd (Co No 10894-D)

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