AirAsia New Rights Issue 2021
If you own any AirAsia Shares in July 2021, you will hear that AirAsia just announced a new Rights Issue. In a normal “Rights Issue” companies ask for more money from their shareholders in exchange for new shares in the company.
Basic Outline
However, AirAsia’s new rights issue is a lot more complicated than a traditional rights issue, instead of just exchanging money for more shares AirAsia is doing a Redeemable Convertible Unsecured Islamic Debt Security (RCUIDS).
Basically, a RCUIDS is known as quasi capital, meaning it is a debt at some point in time and equity the other time, but it cannot be both at the same time. In other securities offerings, there is a term called a Redeemable Convertible Unsecured Loan Stock (RCULS) which is essentially the same as the RCUIDS.
The major difference between RCUIDS and RCULS is that one is an Islamic product and the other is not. What that boils down to is that money raised from a RCUIDS can only be held in Shariah Compliant Deposits and it can only be used for Shariah Compliant Purposes.
AirAsia RCUIDS Details
Now that we’ve explained the basics of the rights issue let’s get into the details of the rights issue itself. If you read the document one big thing jumps up, AirAsia guarantees an 8% profit / return per annum over 7 years which, taken at face value and gives you a return of 56%. However, there are a lot of terms and conditions in the 8% return.
EquitiesTracker has gone through the proposed rights issue document and what really happens is that over the 7 year period AirAsia will only start paying back the original principal in the 4th year minus the balance of rights redeemed. The actual payment scheme is below.
Scenario #1
What this calculates to is (8% x 7 Years x Balance of Rights Held), which works out to 44% profit at the end of the 7 years assuming AirAsia does not repay the full amount in year 4. This 44% profits averages out to around 5.35% per annum over 7 Years.
- Scenario #2
On top of this return there is another detail to note, if AirAsia has enough money to pay back the debt from this rights issue, the document states that on the 4th year AirAsia can pay the full outstanding principal owed to you and an additional 5% bonus on the nominal rate which is valued at 75sen per right. This means on the 5th year onward since they have already paid out the original principal plus the 5% nominal rate they won’t be obligated to continue paying the 8% profit per annum.
- Your Rights
The last detail to keep in mind about the Rights Issue is that at any point in time of the 7 years you can exchange 1 right for 1 AirAsia Share without paying any additional money to get the share.
To understand all this let’s use this example: you currently own 6,000 shares of AirAsia today, you are eligible to subscribe for 2,000 rights. With the 2,000 Rights you will get 1,000 free Warrants. The amount of money you will need to come up with to get the rights issue is the nominal value of 75sen times the 2,000 rights is RM1,500.
To figure out how much money you get at the end of 7 years you multiply the RM1,500 with 44% ROI (assuming AirAsia does not repay the debt of which you will receive 8% x 4 + (0.75sen x 105%) and you will get a total of RM2,160 at the end of the 7 years. This is all assuming you as a shareholder will take up all the rights.
- What if you do not take up the rights?
However, if you do not choose to take up the rights you will need to pay attention to what we tell you next. The Rights themselves are renounceable, meaning on the exit date of the rights issue you will have a 5 trading day window to sell off these rights that you are eligible for. The rights themselves have a price value that is tradable in the share market, so during these 5 days, there will be a price for these rights that you can sell to whoever wants them in the market. Let’s say the price you see in the market is 10 sen, thus during the 5 days, you will be able to sell your 2,000 rights at 10sen each gaining you RM200. However, after 5 days if you haven’t sold the rights they will disappear and you will not be able to sell them in the share market. They are lost and you get nothing.
Conclusion
AirAsia’s new rights issue is a complicated rights issue. More complicated than a traditional rights issue, EquitiesTracker hopes we’ve simplified it for investors.
