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 A de-listing would pave the way for Khazanah to revive the ailing
carrier, possibly by selling off its profitable engineering, airport
services or budget airline units, trimming its bloated payroll and
installing a new management team.
The restructuring and potential sale of MAS is politically fraught
due to heavy opposition to job losses from its powerful labor union,
which has hampered previous revival plans, and its status as
Malaysia's national flag-carrier.
At MAS's current price of 21 sen per share, majority shareholder
Khazanah would need to pay only 1.05 billion ringgit ($328 million)
for the 30.6 percent of shares it does not already own, according to
Reuters calculations.
Khazanah's board, chaired by Prime Minister Najib Razak, is expected
to meet at the end of July to discuss the plan, one of the people
said, adding that an announcement would be made by the end of this
year.
The sources declined to be identified because of the sensitivity of
the issue.
The state investor is working with CIMB Investment Bank on the
restructuring, the sources added, but cautioned that the plan, and
its details, are subject to change depending on the ultimate
decision by the government.
Khazanah said last month it was considering all options and would
unveil plans within 6-12 months to restructure the airline, which
has been squeezed into three straight years of losses by intense
competition locally and on long-haul flights.
Hit by slumping ticket sales in the wake of the baffling
disappearance of MH370 on March 8, the company turned in its worst
quarterly performance in two years in the January-March period and
is currently burning through its operating cash. Its shares have
fallen 16 percent since the disappearance compared to a 2.8 percent
gain in the benchmark stock exchange index.
MAS's chief executive said last week that the business needed to
embrace "radical or sweeping" change to survive.
Asked to comment on the privatization plan on Wednesday, a Khazanah
official said the fund had nothing to add to its June statement.
Reuters contacted the relevant officials at MAS and CIMB, who did
not immediately respond to requests for comment.
Taking MAS private could enable Khazanah to restructure it with
little interference from shareholders and the powerful airline
union, analysts say.
Resistance to previous restructuring efforts by the union, which
represents a workforce of around 20,000, has hampered the airline's
efforts to cut costs and improve competitiveness in the face of
fast-growing, low-cost carriers such as AirAsia Bhd and Indonesia's
largest private airline, Lion Air.
The head of the MAS labor union, however, was recently quoted by
local media as saying he would support a privatization if a new
leadership was brought in.
"This (privatization) will remove pressure from the public, from
politicians to the unions, hence focusing on its turnaround," said a
Kuala Lumpur-based equity analyst who covers MAS but who declined to
be identified by name because of the sensitivity of the issue.
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UNION RESISTANCE
Mahathir Mohamad, Malaysia's longest serving prime minister and an
influential politician, was quoted in local media as saying that
taking MAS private was the best option to enable a radical
restructuring from top to bottom.
Khazanah should exit MAS upon privatization and the airline should
be run by those who can work with the union to revive its fortunes,
he suggested.
Khazanah has injected more than 5 billion ringgit into MAS over the
last 10 years, but a series of recovery plans and leadership changes
failed to revive its fortunes.
The state fund tried to cut its stake in the airline in 2012 in a
share swap deal with AirAsia, but the main union - Malaysia Airline
System Employees Union - successfully blocked a move that would have
brought in a profitable airline with experience of competing
aggressively.
Privatization also has the advantage of being relatively cheap for
Khazanah, which owns 69.4 percent of MAS, thanks to the airline's 83
percent tumble in market value over the past five years. The broader
Malaysian market has risen nearly 75 percent during the same period.
MAS would have a "break-up" value of 4.15 billion ringgit, well
above its current market value of 3.4 billion ringgit, Maybank
Research said in an April report. The airlines' profitable units
include MAS Engineering, Airport Terminal Services and its budget
airline unit Firefly.
Sources involved in discussions told Reuters in May that the airline
and its key stakeholders were in talks with banks for a strategic
overhaul that could include the partial sale of the engineering unit
and an upgrade of its ageing fleet.
Bankers said declaring MAS bankrupt was not a decision the
government would likely favor as it could harm the airline's chances
of selling off the profitable units.
Analysts say the airline is set to post another weak performance in
April-June as it continues to struggle with flight cancellations,
weak passenger yields and high overheads.
($ = 3.2050 Malaysian Ringgit)
(Reporting by Yantoultra Ngui; Editing by Stuart Grudgings and Miral
Fahmy)
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