AirAsia India disposal will address Capital A's ongoing liquidity concern, says HLIB Research

KUALA LUMPUR: The cash proceeds from Capital A Bhd's disposal of its remaining stake in AirAsia India (AAI) are expected to strengthen the company's cash coffer and address its ongoing liquidity concern, Hong Leong Investment Bank (HLIB) said.

Yesterday, Capital A announced the disposal of its remaining 16.33 per cent stake in AAI for gross proceeds of 1.6 billion rupees (RM89.3 million).

"While it hurts for Capital A to exit the Indian market completely, we believe this is a positive short-term measure for the company to focus on its core ASEAN market for now. 

"Capital A will receive RM89.3 million for strengthening its cash coffers and addressing its ongoing liquidity concern as the group continues to recover from the Covid-19 pandemic. 

"We believe Capital A will be able to leverage the recovery of regional air travel demand. 

"Over the longer term, when Capital A's balance sheet has strengthened, we believe it will again explore opportunities for expanding the group's network and market reach," the bank-backed research firm said in a note today.

According to a filing to Bursa Malaysia yesterday, Capital A will not recognise a gain or loss on the disposal as the disposal price matches its fair value. 

Post disposal, Capital A will not hold any equity interest in AAI, and the Brand License and Technical Services Agreement between AirAsia Bhd and AAI will be terminated after 12 months from the date of termination of the shareholders' agreement between the parties or at an earlier date as may be intimated by AAI. 

HLIB has maintained its 'Buy' call on Capital A, with an unchanged target price of 88 sen.

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