US$429M Buyout Proposal Would Lead to Delisting of Malaysia Airlines

Sovereign wealth fund Khazanah Nasional Bhd. has bared plans to be the sole ordinary shareholder of disaster-stricken Malaysian Airline System Berhad, which would lead to a delisting of MAS.

On August 8, Khazanah submitted a formal request to the Board of Directors of MAS to undertake a selective capital reduction and repayment exercise of MAS’ ordinary shares.

The proposal will enable minority ordinary shareholders of MAS to receive a capital repayment amount of RM0.27 per ordinary share for a total of 1.38 billion ringgit (US$429 million). This represents a 12.5% premium to closing price on 7 August 2014 and a 29.2% premium to the 3-month volume weighted average market price.

Upon successful completion of the Proposed SCR, Khazanah will become the sole ordinary shareholder of MAS, which would lead to a de-listing of MAS.

In June 2014, Khazanah had announced that it was in the midst of undertaking a comprehensive review of MAS, in consultation with the Special Shareholder, the Minister of Finance Incorporated. Khazanah further clarified that subject to the necessary approvals from the relevant authorities, it would announce the proposed restructuring scheme within a period of 6 to 12 months.

"The proposed restructuring will critically require all parties to work closely together to undertake what will be a complete overhaul of the national carrier," Khazanah said in a statement. “Nothing less will be required in order to revive our national airline to be profitable as a commercial entity.”

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.

Before the tragedy that struck Flights 17 and 370, Malaysia Airlines had racked up 4.13 billion ringgit in losses over the previous three years.

The carrier will probably lose more than 1 billion ringgit in 2014, according to average analyst estimates compiled by Bloomberg.

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.

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