AirAsia chief prepares runway for New York Spac listing

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Tony Fernandes, the Malaysian tycoon behind budget airline AirAsia, is planning to raise more than $1bn in debt and equity for his Capital A conglomerate and preparing to list some of its businesses through a blank-cheque company in New York.

The entrepreneur has agreed a deal with Aetherium Acquisition, a special purpose acquisition company trading on Nasdaq, and plans to list several businesses through it next year, according to two people familiar with the deal. They include a new business extending the AirAsia brand to companies hoping to start airline franchises in developing countries.

AirAsia, which Fernandes bought from the Malaysian government in 2001 for less than $1 and turned into one of the region’s largest low-cost carriers, has since diversified into multiple business lines.

The Kuala Lumpur-listed group was renamed Capital A last year to reflect its broadening portfolio, which includes a fintech “super app” called Move, an aviation consultancy arm, logistics business Teleport and airline engineering and maintenance services provider Asia Digital Engineering.

The Spac deal would be a significant test of investor appetite for the AirAsia brand after the group underwent a dramatic restructuring to rescue its debt-laden business during the pandemic.

As of 2021, Capital A has been classified as a distressed company by the Malaysian government, a categorisation known as Practice Note 17 that subjects companies to greater regulatory scrutiny. It has applied to exit PN17 status.

Capital A has come under focus in the past over its accounting practices, liquidity constraints and debt levels. While those levels have fallen back since hitting highs of more than $15bn during the Covid-19 pandemic, levels are still elevated at $5.1bn compared with its market capitalisation of $760mn.

AirAsia has reactivated most of its routes and says it is planning growth in secondary and tertiary routes in countries such as India as tourism in Asia rebounds. Its share price has risen by a third so far this year.

Analysts expect the company to report profits of $535mn this year, higher than in 2019 before the pandemic began. Its engineering and logistics businesses are generating profits, and the airline business in August recorded its fourth consecutive quarterly profit.

The deal with Aetherium is expected to be finalised in early 2024, one person added. The Spac raised $115mn in January 2022 from south-east Asian and Hong Kong-based investors, but Capital A may raise extra cash from an additional private investment in public equity, a common feature of Spacs.

Capital A has long harboured plans to list part of its business internationally in the US. Fernandes first flagged a Spac listing in an interview with the Financial Times in 2021 but last year said he would list part of the business by itself in New York, as well as listing the super app.

Spacs, a backdoor way of listing a business through a merger with an already-listed company, were popular during the pandemic, but investors have since soured on such deals, with many vastly underperforming the stock market.

The new entity will be renamed Capital A International and contain a new AirAsia franchise business that will help launch airlines in countries such as Bangladesh and the Maldives. It will also include its consulting arm and aircraft leasing business.

“Capital A still has a lot of debt, which is concerning, but operationally things are going quite well. This year looks like it will be better than the year before Covid,” said Nirgunan Tiruchelvam, an analyst at Aletheia Capital.

“US capital markets are generally much more tolerant of finances like this than markets in Asia,” he added. “Fernandes has an extraordinary ability to energise his investor audience.”

Before the Spac deal, the company is hoping to secure more than $1bn in new equity and debt over the next few months, according to one of the people. This includes a $150mn loan from Bangkok Bank this month, a deal agreed despite the PN17 status.

Capital A is planning a $400mn loan in the form of a revenue bond to be paid out of airline ticket sales, mostly from private credit funds. A plan to raise $300mn in fresh equity from investors in the first quarter of 2024 is under discussion.

The group has also inked $175mn in separate fundraising deals for Teleport, Move and Asia Digital Engineering.

“I think Capital A is still considered to be in financial trouble, but maybe that can be restructured away,” said Angus Mackintosh, founder of CrossASEAN Research, adding that investors might be wary of an airline business amid rising interest rates and oil prices.

Capital A declined to comment on the Spac plans, and Aetherium did not respond to a request for comment.