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 Indonesia's transport ministry said PT Indonesia AirAsia was one of
13 carriers that must repair stretched balance sheets by July 31 -
or face shutdown. Already hit in recent weeks by questions over
accounting that the airline rejected, AirAsia shares tumbled more
than 15 percent on Wednesday at one stage.
The ministry's directive means Indonesia AirAsia, 49 percent-owned
by Asia's biggest low-cost carrier, has just over three weeks to
raise at least $230 million to reverse its shareholder funds
deficit, analysts said. The parent company's stock fell by nearly
$140 million on Wednesday, giving it a market value of $952 million.
The tighter scrutiny on finance is part of a concerted drive by
Indonesia, a loss-making but key market for AirAsia, to bolster its
aviation safety credentials. Last week's crash of a military
transport plane, killing more than 140 people, followed last
December's crash of an Indonesia AirAsia jet with the loss of all
162 people on board.
"If they don't meet the requirement, we will suspend them," ministry
spokesman J.A. Barata told Reuters. "We have to consider the safety
of society at large."
In a statement, Sunu Widyatmoko, President Director of Indonesia
AirAsia, said there is no risk to its license to operate in
Southeast Asia's biggest economy. Its level of equity has "never
been an issue", Widyatmoko said, and the carrier will seek active
discussions with the transport ministry.
AirAsia stock closed 12.8 percent lower while its long-haul arm,
AirAsia X, ended down 2.4 percent. The benchmark index eased 1
percent.
ON EDGE
The focus on the Indonesia affiliate comes at an awkward moment for
AirAsia, led by Tony Fernandes, one of Asia's best-known chief
executives.
While its operational performance has improved since stiff
competition squeezed it into a loss at the end of last year,
investors' nerves are still jangled by a June 10 report by Hong
Kong-based GMT Research that said AirAsia uses transactions with
loss-making associate carriers to boost its earnings. Shares have
fallen by more than a third since then.
On Wednesday, AirAsia's long-haul arm, AirAsia X Bhd, said it had
filed an official complaint with the country's Securities Commission
against GMT Research over its "untrue, misleading and inaccurate"
report. AirAsia X said the GMT Research report said profits were
shifted between the two carriers by way of transfer pricing of
service fees and costs charged by AirAsia.
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Asked to comment on the AirAsia X filing, GMT Research founder
Gillem Tulloch told Reuters by telephone, "We only do research, we
don't force people to sell (shares). Investors make their own
decisions."
According to a person familiar with AirAsia's strategy, speaking on
condition of anonymity, AirAsia has known "for a while" that there
is a need for its Indonesia affiliate to raise funds. The company
has been exploring options including a stock market listing for the
affiliate, tapping the debt market or getting existing investors to
inject more cash, he said.
Despite the sharp market reaction, some analysts were skeptical on
whether Jakarta can realistically enforce such a tight deadline on
raising equity.
"This ruling is so onerous, chances are all 13 airlines will be
suspended so thousands of jobs will be lost (if the ruling is
enforced)," Mohshin Aziz, an analyst with Maybank Kim Eng. "No
government in the world wants that," he said, predicting wrangling
between the airlines and the Indonesian government to resolve the
matter.
If Indonesia AirAsia were to lose its permit to fly in Indonesia,
some speculate it might force a major rethink for Fernandes.
"If local capital is not forthcoming," Credit Suisse analysts wrote
in a recent note, "and Indonesia AirAsia's operating permit is
suspended, this may be the catalyst that forces management to wind
down Indonesia AirAsia."
(Additional reporting by Emily Chow in KUALA LUMPUR and Anshuman
Daga and Siva Govindasamy in SINGAPORE; Editing by Stephen Coates
and Kenneth Maxwell)
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